A letter to Lord Grenville on the sinking fund

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JUL J 5

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A LETTER

LORD GRENVILLE,

SINKING FUND.

THOMAS PEREGRINE COURTENAY, Esq., MP.

LONDON :
JOHN MURRAY, ALIJEMARLE STREET.

MDCOCXXViri.

LONDON :
PRINTED BY WILLIAM CLOWES,
Stamford-Street.

PREFACE.

It is perhaps necessary to assure the reader that,
although the following observations proceed from
a person who holds an office under His Majesty's
Government, they express only the sentiments of
the individual writer.

He is entirely ignorant of the opinions enter-
tained by the Cabinet, or by the Ministers of
Finance, upon the great financial question now
at issue.

He thinks it also necessary to apologise for the
length of this tract. He was desirous of giving
a full, historical, explanation of the system of
finance, established by Mr. Pitt the author of the
Sinking Fund ; and he was also desirous of pursu-
ing Lord Grenville's argument, point by point.
He fears that the connexion of these two purposes
has occasioned repetition.

CONTENTS.

Sect. Page

I. Introduction . . . . .1
2 Principle of the Sinking Fund , . . . 7

3. On the Essay, Chap. I. — Necessity of a Surplus Re-

venue for the support of a Sinking Fund . .12

4. History ofthe Sinking Fund of 1716 . 22

5. Mr. Pitt's system of Finance; Sinking Funds of 1786

and 1792. . . . . .30

6. On the Inutihty of borrowed Sinking Funds ; and In-

efficacy of Sinking Funds operating in War . 38

7. On the Essay, Chap. II. — Operation and results of

the present Sinking Fund ; — its benefit consisting in
the release of previously appropriated taxation . 48

8. On nominal Capitals given for money borrowed . 51

9. On the operation of the Fund, as supported by sur-

plus taxation . . . .54

10. On the reduction of Debt, as effected by mere ex-
changes of Equivalents. Compound Interest . 55

II. On the Essay, Chap. III. — Attempted Permanence

and frequent Interruption of the System . . 59

12. On the benefits of Compound Interest; provisions
adopted for giving permanence to the Sinking Fund
of 1786 ..... 61

Vm CONTENTS.

Sect. Page

13. On the actual Failure of these endeavours ; history of

Mr. Pitt's Sinking Fund, 1786 to 1793 ; effects of
taxes, and their repeal ... 63

14. Sinking Fund during the war of 1793 . . 79

15. Modification of the Sinking Fund in 1802 . 89

16. Sinking Fund in the war of 1803 . . . 92

17. Modification of the Sinking Fund in 1813 . 93

18. The Sinking Fund during the present period of peace ;

Repeal of Taxes ; Deadweight . . .100

19. Alleged Failure of the System generally . . 108

20. On Lord Grenville's conclusion ; supposed advantages

of the Sinking Fund . . . . .113

21. Concluding Observations and Suggestions . 118

LETTER

LORD GRENVILLE,

My Lord,

Though not unused to political contro-
versy, I undertake, with unfeigned diffidence,
the task of commenting upon your Lordship's
Essay. I never read an appeal to the public,
more likely to produce the effect which it
contemplated. Your authority as a states-
man, great for the last forty years, is
strengthened and embellished by the ab-
sence of personal interest. The ingenious
malignity, often effectual against ministers,
cannot impute to your Lordship, retired
among your pines, and disconnected from
parties, any other motive than that which
you avow ; — a desire to advise your country

B

" in a discussion of urgent interest, and per-
manent importance."

The advice, moreover, penetrates willing
ears, because it tends to reconcile duty and
inclination. Its effect is to relieve govern-
ment from an invidious task, and the country
from a burdensome obligation. I will not
say, considering your lordship's peculiar
situation, that these circumstances justify a
distrust of the advice ; but I do submit, that
they detract much from the value of the
testimony which is borne to the soundness
of that advice, by the sympathy, and the
applause, with which it is received : at the
least, I may urge them as a part of my own
justification, for setting forth my doubts as to
the wisdom of the counsel.

I am painfully sensible of the inequality of
the contest in which I engage. The opinions
of a subordinate official man have no extrinsic
value ; they can derive no weight except from
the force of the arguments which support

them. Nor could I with perfect confidence
repel an imputation, that they are tinged
with prejudice. I do not wish to deny, that
my notions of public finance were formed in
the school of Mr. Pitt, the author of the
measure which it is now proposed to con-
demn; of that great and amiable man I
have an affectionate remembrance which has
tempted me, in the society of his successors,
to exclaim :

" Heu ! Quanta minus est cum reliquis
versari, quam tui meminisse T

This feeling, I own, has generated an un-
willingness to admit, that his principles, in
any branch of pohtical science, were funda-
mentally wrong and dangerous. I make this
admission, because, though probably neither
Lord Grenville, nor the public, knows enough
of my history, to lead either to ascribe my
opinions to this prejudice, there are those in
high places who, being aware of the perti-
nacity with which I have, for more than five

B 2

and twenty years, advocated the principles
of Mr. Pitt's Sinking Fund, (though I have
certainly modified some of my notions as to
their application) may detract, on that ac-
count, even from such weight as belongs to
my opinion. All that I desire is, that while I
claim no credit for the deep and continued
attention which I have bestowed upon the
matter in question, my suggestions may not
receive less than their due consideration, be-
cause the opinions on which they rest were
learned in youth from an admired master.

Your Lordship deprecates an imputation
opposite in its kind. I subscribe readily and
heartily to the forcible observations, which
you have made, upon the arrogation of poli-
tical consistency. No doubt, it is peculiarly
absurd, for us who make a daily boast of
the progress of science and intelhgence, and
thereupon justify important changes, to con-
fine each individual man to the opinions
which he may have originally formed or im-

bibed ; whatever may be the duration of his
life, or the variety of his experience. Accord-
ing to this plan, error has a life-estate in
every living mind ; the heir may discard it,
but the existing possessor must sustain it.

From your Lordship, apologies for incon-
sistency were quite unnecessary ; but here
again, I must make a distinction between
him who gives, and those who follow, the
advice. Pre-conceived opinions, and the doc-
trines inculcated by departed authority, may
unquestionably lead to a dangerous persist-
ance in error ; but there is another danger,
not entirely to be disregarded; the very
progress of improvement, and the habit of
discarding opinions formerly sacred, engender
an aptitude to dissent, and a love of paradox.
Some men, afraid of giving too much weight
to opinions consecrated by time or authority,
are tempted to give too little. T am per-
suaded that, among a great portion of the
House of Commons, and of literary and poli-

tical writers of the present day, contradiction
to an opinion received twenty years ago,
would be the characteristic of a doctrine
most likely to ensure its reception.

Again, exaggeration on one side, produces
depreciation on the other. A measure or a
doctrine truly wise or sound, is commonly
praised even far beyond its merits, and,
usually, praised ignorantly and inaccurately.
This has been eminently the case of the Sink-
ing Fund ; its invention has been spoken of as
an effort of genius, and its operation as a
work of enchantment. It is not unnatural,
that the real beauty of a figure so tawdrily
disguised, should not always receive the
praise, which it deserves in its native sim-
plicity.

It appears to me that, as well in the form-
ation of your judgment, as in the argument
in which it is conveyed, you lay too much
.stress upon adventitious and incidental circum-
stances ; you combat opinions which are un-

justly imputed to your opponents : above all,
you entirely neglect the fundamental princi-
ple of the measure which you condemn. You
have, therefore, not presented to the public
the question which they are required to de-
cide. This view of the defects in your lord-
ship's treatment of the great subject of con-
troversy, emboldens me to offer the following
observations.

§2.

You have no where, as I humbly submit,
distinctly stated the true principle of the sink-
ing fund; this is, — That the Legislature ought
not to impose a perpetual burdeii upon the
resources of the country. Those who have
the supreme power of the state at any parti-
cular period, ought not, indefinitely, to anti-
cipate the means wherewith their successors
are to administer its affairs. They must not
provide for the expenses to which they are
subject, by a perpetual mortgage of the rcn-

8

tal and income of the people, for all ages
to come. They must, themselves and their
existing constituents, bear the additional bur-
den, which is necessary to avoid such per-
petual or indefinite anticipations.

These maxims, which in truth are only
various expressions of the same meaning,
constitute, as I suggest, the principle of the
sinking fund ; that upon which it is endea-
voured to give to arrangements for redeeming
the public debts, the character of sacred obli-
gation, and fundamental law.

I may be under a prejudice, or a delusion,
but I own that the principle appears to me
to be obviously just.

It is, indeed, only the application to the
whole rental and resources of the country, of
a principle which our law has, by repeated
acts, imposed upon all those individual or
corporate proprietaries, which have a perpe-
tual succession ; upon the crown, for instance,
and the church. A corresponding restriction

is voluntarily imposed by the acts of indivi-
duals, who leave their property to more than
one heir in succession ; all, but the last, (and
in the case of the state, the crown, or the
church, there is no last) are limited in their
power of charging the land, for jointures,
marriage portions, and other perfectly legiti-
mate expenses : still more, in their power of
mortgaging it for personal debts.

Distinctions might, unquestionably, be
shown between these cases and that of the
state ; but I am the more confident in using
them as illustrations of my position, because
your lordship has correctly observed that " a
reference to similar transactions in private life
is the best of all instruments for the discovery
of truth in political economy."*

There is, indeed, a class of public debts to
which the limitation of duration is applied
by law. Parishes, and sometimes, I believe,
counties, are empowered to raise money for

* Essay, p. 41.

10

certain public purposes, by anticipation of
their rates ; parliament has never thought fit
to allow of a perpetual charge upon these
funds. The power of charging is, usually, for
twenty-one years, within which time, the debt
must be discharged, either by the original
terms of the loan, or by the application of a
sinking fund. Yet the purposes for which
this charge is permitted, are not usually ephe-
meral ; and a perpetual mortgage might be
allowed, with, at least, as much reason as in
the case of a national debt.

The sovereign power of the state is un-
controlled by laws ; humanly speaking, it is
omnipotent ; but it surely will not be con-
tended that those who exercise it are not
under an obligation, I would even say a moral
obligation, to regard the interests of their
successors and descendants. If the payment
of taxes is burdensome to the people, and
the operations of finance are difficult to the
legislature, it is not just or equitable for the

11

occasional holders of the power, to relieve
themselves by imposing that burden and
difficulty upon those who are to follow them.
It is quite unnecessary to consider here, in
what degree taxes are an evil ; because, if
they are not so, and if there be no difficulty
in raising them, we can have no excuse, nor,
indeed, any advantage, in borrowing money
for our own expenses, and throwing the in-
terest upon posterity. The measure which
we take to ease ourselves of the weight,
proves that it is a burden disagreeable to be
borne.

It is strange, indeed, to listen to what one
frequently hears, an objection to sinking funds,
as attempts to bind posterity. Do not those
who make the objection, does not your lord-
ship, perceive, that the law of the sinking fund
only imposes upon posterity an obligation,
from which, at most, they may rid themselves
by a sacrifice of uniformity or consistency ;
while the obligation imposed by the law

12

which creates a perpetual annuity, can only
be renounced through a breach of faith ?

Thus much, preliminarily, on the principle.
I will now follow your lordship through the
details of your argument ; and shall have fre-
quent occasion to enforce and illustrate the
fundamental doctrine, the maintenance of
which is essential to the greater part of what
I shall offer, in opposition to your several pro-
positions. Perhaps, the arrangement which
you have made of your argument, is not the
most convenient for discussing the question
in reference to that doctrine ; but I still think
it best to pursue the Essay through its regular
course, as well in deference to your lordship,
as because it contains very few observations
which are not worthy of separate notice.

§3.

You begin by laying down as a rule, " The
" necessity of a surplus revenue for the sup-

13

" port of a sinking fund*." And from this
you, naturally and reasonably, deduce the two
further positions ; the one affirming " The
" inutility of borrowed sinking fundsf ;" the
other, *' The inefficacy of sinking funds ope-
" rating in war J."

According to my principle, the parliament
which raises money by anticipation of the
revenue, is limited as to the period for which
the mortgage is to endure. The plainest and
simplest mode of effecting this limitation is,
by borrowing money upon an annuity, to exist
only during the limited period. When this
mode is adopted, we pay for the money bor-
rowed a temporary interest, exceeding, per-
haps, by a fifth or a sixth, that to which we
should be liable if we agreed to pay the
interest for ever. This excess necessarily
obliges us to appropriate, if it exist, or to
create by taxation, if it do not exist, so
much of surplus revenue. And there is in

* Essay, p. 5. t p. 7. J p. 12.

14

this case no question ; the whole money must
be raised, or we are bankrupts ; but there is
no reason for raising any further surplus with
a view to redemption. The sinking fund is
inherent in the original annuity.

I would here stop to ask your lordship,
whether, if it were practicable, without loss,
to raise all our loans upon such terminable
annuities, you would think it unadvisable so
to raise them ? I am really not aware, how
you would answer this question; but I am
sure that you perceive at once, that an an-
swer in the affirmative, implies an adherence
to my position, that we ought to subject our-
selves to additional taxation, in order to
lighten the burden upon posterity.

I would almost venture further to ask you,
whether it would not have been beneficial to
England, if there could have existed, during
the last century, a fundamental and irrepeal-
able law, limiting the power of parliament in
its mortgages of the revenue ?

15

However, no such constitutional limitation
does or can exist ; and there are, we know,
practical difficulties in the way of borrowing
upon terminable annuities: the lenders are
unwilling to take such annuities, at their
proportionate value to perpetuities. In bor-
rowing, therefore, upon them, we not only
incur an additional charge, as before stated,
for the sake of redemption, but we also pay
for this unwillingness of the lenders.

It is not to our present purpose to inquire,
whether there has not been sometimes a too
ready acquiescence in this unwillingness ; I
pass then to the other mode, by which the
limitation of the mortgage is to be effected.

This mode consists, in borrowing upon a
perpetual annuity ; setting apart, in addition
to the interest, so much of revenue as will
redeem the annuity within the period limited
The manner in which this additional revenue
is applied, is indifferent, provided that it so
operates as to set free, at the end of the pe-

16

riod, revenue equal to the interest of the
loan. It may be applied in the purchase, in
the market, of the particular securities which
occasion the appropriation ; in the purchase
of any other annuities of equal amount ; or
in any other mode whereby the charge which
will remain upon the resources of the state
at the expiration of the period, is proportion-
ably diminished.

It is unquestionably true, that the ad-
ditional revenue destined for this purpose,
ought to be a clear surplus, beyond all charge
for the interest of debts, and all other per-
manent charges upon the revenue ; and it is
also true that it ought to be a surplus beyond
the amount of the ordinary expenses of the
state existing at the time, even though those
expenses are not in their legal form perma-
nent ; the appropriation would be otherwise
evasive and nugatory.

So far, then, I concur in your lordship's
first position. And yet, I do not admit as a

17

necessary consequence of this position, that
the appropriation is always absurd or ineffi-
cacious, when there may happen to be, in
one or more of the years in which it endures,
a deficiency of revenue, occasioning a new
debt.

My difference from your lordship upon
this point, is a necessary consequence of my
principle of a sinking fund. The surplus
from which that fund is to be supplied may
cease for a time, and the condition which has
been prescribed, as to the duration of charge,
may, nevertheless, be strictly preserved. This
happens when (as in the year 1827, to which
you refer*) a deficiency occurs, which there
is good reason for supposing temporary ; an
anticipation then takes place of the resources
of the next, or next two years immediately
following. No permanent charge is, in this
case, created; if the deficiency still con-
tinues, the principle would assuredly require

* Page 10.

18

that it should be supplied by the creation of
a new revenue. The principle is in either
case maintained. In my opinion, we ought
always to keep up an average revenue, ex-
ceeding in amount every permanent and or-
dinary charge ; so as to meet the accidental
occurrence of a deficiency : but if this provi-
sion has not been made, the temporary defici-
ency must be met by a temporary expedient ;
and every thing then proceeds as before.

Perhaps, you may suggest that, even
according to my principle, the object would
have been equally well effected, if we had
suffered the appropriation to be suspended,
until a returning surplus had supplied it, and
replaced the fund in the condition to which
an uninterrupted appropriation would have
brought it. I confidently aver, that this
mode would have been, in every respect, more
inconvenient, and would have led to greater
complexity of account, than that of issuing
Exchequer bills. If, indeed, your lordship had

19

not specifically mentioned the measure of
1827, 1 should scarcely have ascribed to that
occasional measure, the strong and contemp-
tuous expressions which you have directed
against " borrowed sinking funds."

Your observations, I will presume, are ra-
ther applied to the systematic existence of a
sinking fund, continually supplied by borrow-
ing ; or, what you deem the same thing, the
continued existence of a sinking fund, while
the revenue falls short of the expenditure
and the deficiency is supplied by loans; so
that stock is sold and bought by government
at the same time ; and you thence urge the
impossibility of keeping up a real sinking fund
in time of war, when there is a constant and
certain deficiency of income.

I have already admitted, that the surplus
constituting a sinking fund, ought to be a
surplus, beyond the ordinary expenditure.
I have thus conceded to your Lordship all
that you object to sinking funds, systema-

c 2

20

tically supported by loans in time of peace.
The sinking fund ought in such a case to be
either restored to its due amount by taxa-
tion, or avowedly reduced to the amount of
existing surplus. It can scarcely be neces-
sary to argue, that the state ought, in com-
mon prudence, and, with a view to its power
of conducting any war which may arise, to
apply some surplus, or at least to make no
addition to its debt. At all events in time of
settled peace, the finances ought to be, and
may be, placed upon a regular and almost
certain basis. The legislature has an oppor-
tunity of fixing the scale of its expenditure,
its taxation, and of the surplus, if any, which
it will apply to the reduction of debt. It
may determine, and act upon, the principle,
whereby the apportionment of the burden of
taxation between present and future times
is to be fixed ; and the reason, sometimes
urged for maintaining a nominal sinking
fund, the preservation of a dormant principle

21

to be hereafter restored to activity, has no
force at such a period.

I am prepared to admit, further, that an
adherence to the name, and forms of the
sinking fund, is equally useless and absurd
in war, unless the financial arrangements,
including that sinking fund, proceed upon
a plain and intelligible principle, to which
there is at once the possibility and the
rigid determination to adhere. You, my
Lord, while you deny, with forcible argu-
ments, the utility of attempting this ad-
herence, refer to past history in proof of the
hopelessness of success. We may give, you
say, " a visionary permanence to the sinking
" fund by law, its useless forms may be con-
" tinned, in vain semblance of that which
" once was powerful and active, but its vital
" spirit we cannot so preserve *."

Now, my Lord, I am not satisfied of our
inability to preserve, at all times, an active

* Essay, p. 13.

22

and salutary principle of finance, founded
upon the scheme of which the sinking fund
is a part ; I believe that the failures which
you relate, as I submit, with much exaggera-
tion, originated in the neglect, now sanc-
tioned by your Lordship's great authority, of
fundamental principles ; I do not despair of
an attempt to re-invigorate those principles.
In support of this essential difference of
opinion, I must now follow your Lordship
through your history of the sinking fund.

§4.
The system under which a perpetual charge
is laid upon the country, whenever a defi-
cient revenue is supplied by a loan, boasts
of rather less antiquity than we commonly
suppose. During the reigns of William and
Anne, considerable sums were borrowed ;
but the annuities created were in general
annuities for terms of years, or for lives ;
" the principal being to be sunk at the end

23

** of the term granted, which might be looked
" upon as a sinking fund attending these
" particular debts *." The exceptions were,
the debts to the great companies, and the
banker's debt, which, perhaps, as it arose
from the fraud of ancestors, it was thought
fair to throw in part upon posterity. In
most other cases, the duties which con-
stituted the fund, whereon each particular
loan was charged, were chargeable with the
principal as well as the interest of that parti-
cular debt. In 1716, the surpluses of all
the particular funds, and of other more
general funds, into which some of them had
been united, were carried, together with
some savings effected by the reduction of
interest, to a new " Sinking Fund ;" which
fund was made applicable to the payment of
debts existing on the 25th December, 1716,
" and for none other use, intent, or purpose
" whatsoever • j •," And it was so applied, with-

* Tindal, \\x. 131. t Act 5 Geo. I. cap. 3. sect. 06.

24

out any systematic exception (there were, I
believe, some silent encroachments,) during
the reign of George L, and the first six
years of George II., notwithstanding that
within the same period, other debts equal to
much more than the half of those redeemed,
were paid off by this fund. In 1733, Sir
Robert Walpole took half a million from the
fund.

This measure your lordship ascribes to the
sagacity of Walpole who, "outrunning the
" wisdom of his contemporaries,'' discovered
" the contradiction of increasing debt in the
" very moment of professing to reduce it*/'
Your lordship is much too good an historian
not to have observed the facility with which
motives, good or bad, are ascribed to the
heroes of history; I must humbly submit
that you have furnished a notable instance of
the practice. Your argument stood in no
need of Walpole's authority ; but there is

* Essay, p. 16, 17.

25

really not any ground for believing that he
acted upon any higher motive than that which
he professed, the desire to relieve the landed
interest by voting the land tax at one shill-
ing instead of two. He showed reasonable
grounds for his suggestion, but did not hint
at that which you now imagine for him. He
denied peculiar sacredness of character to the
measure of 1716; he argued that circum-
stances were so much altered, that pubHc
creditors were now more afraid of being paid
off, than of losing their principal ; that the
landed gentlemen desired and deserved relief*.
Of a loan, there was no question. Walpole,
indeed, so far from adopting the objection
urged against the sinking fund, as operating
at a time when new debts were incurred, had,
a few years before, laid before the king a re-
presentation from the House of Commons, in
which that objection was over-ruled -f,

* Pari. Hist, viii., 1200, 1, 5, 6.

t Representation of the Conitnons to tlie Kinfi, April 8, 1728.
Pari. Hist, viii., p. 651.

26

Walpole was, I suspect, right in his Hghter
estimation of the measure of 1716 ; it was an
arrangement of finance, not establishing any
new principle, but simply consolidating what
had been done, upon a similar principle, in
variety and detail : this minister, however,
had, himself, recently countenanced the no-
tion of the inalienabihty of the fund, when he
advised George II/s answer to the Commons'
Representation *.

Historical illustrations, if used at all, should
be accurate and complete ; otherwise, this
inquiry concerning Walpole is of no great
importance ; but I gladly seize the opportu-
nity which your reference to the debates of
1733 affords me of exhibiting, not in Walpole,
but in his opponents, some indications of the
principle for which it is my great object to

* Pari. Hist. viii. 666. — " The provision made for gradually
" discharging the National Debt, is now become so certain and
" considerable, that nothing but some unforeseen event can alter or
" diminish it, which gives us the fairest prospect of seeing the
" old debts discharged without any necessity of incurring new."

27

contend. I care not whether it was through
the superior sagacity of Sir John Barnard *,
and Sir WilUam Wyndham f, or simply from
that excitement of party which invokes every
argument that can be devised ; but they did
urge the just and correct reason against the
unrestrained accumulation of debt, when they
argued in favour of the redemption, not for the
benefit of the creditors, but rather for the
sake of their ov/n children, and, more parti-
cularly, of the future owners of their lands.

These arguments were unsuccessful in
1733 ; they will probably fail in 1828 : but
I thank you for the opportunity of citing high
parliamentary authority, in support of one of
my favourite positions.

I cannot concur with your lordship, in as-
cribing to the deliberate judgment of " some
of our best and wisest statesmen," the absence,
for the next forty years, of any systematic
plan for the reduction of debt. It is indeed

* p. 1206. t P. 1209.

28

true that successive ministers " did not show
" much solicitude to increase the taxation of
" their country for the purpose of providing it
" with a surplus ; and that their reductions of
'* debt were principally, though not wholly,
" effected by the falling in of annuities, and
" by the diminutions successively made in the
" rate of interest on the public securities, by
" tenders of repayment*." In other words,
they took the advantage afforded to them by
the provident limitations of their forefathers ;
they readily availed themselves of any op-
portunity which the state of the public secu-
rities furnished, for relieving themselves from
the burden of taxes ; and they borrowed
without scruple, and without any definite
limitation, all that they wanted in war, some-
times too in peace ; taking little heed of the
future, making no provision for the redemp-
tion of debt, and, in the last instance, the
American war, providing very insufficiently

* Essay, p. 17, IB.

29

even for its interest. Is this the example
which you recommend for imitation ?

It did not require the fanciful calculations
of Dr. Price, to convince the just and prudent
minister of 1786, that this system, or rather
these practices, of finance, were not worthy
of his country, or of his fame.

I will not exaggerate Mr. Pitt's merit in the
restoration of the finances after the American
war ; his measures were highly judicious,
and greatly assisted the elastic tendency
to recover from distress, which this free
country has always developed. My object
is to explain the system of finance which
Mr. Pitt adopted, so soon as these co-ope-
rating causes had produced a surplus of re-
venue. I am sorry to say, that even your
lordship stands in need of this explanation ;
still more, those, who are familiar only with
the complicated transactions of later years.

30

§5.
Mr. Pitt, in applying to the existing debt,
his fund of redemption, which he fixed at one
miUion, could find no rule either in law or in
history, for its apportionment between one
period or generation, and another. It was ob-
vious, that unless a considerable burden were
borne by the people then existing, no mate-
rial reduction could be effected. But it was
neither reasonable, nor necessary, that the
burden should be continued, without any relief,
until the whole debt should be extinguished.
Your lordship considers the measure of limi-
tation, as " a wise precaution, showing an
" early and just apprehension of the evils
" since felt from an opposite policy*." As
indefinite accumulation has at no subsequent
time been our policy, I know not to what
period you refer.

I attempt not to define the exact motives

* Preface, p. ix.

31

of Mr. Pitt*s decision, but he appears to have
determined that the fund should operate
without producing any direct rehef, during
the period which is usually assigned to a
human generation. He did not fix the num-
ber of years, but he calculated the amount
which the fund would reach in about twenty-
eight years. Within this period, the savings
effected by the annual application of the
fund, were to be applied, together with the
original fund, to the reduction of debt. After-
wards, the fund, as it would then stand, was
to be applied to the reduction of debt ; the
annual savings were to be disposable for cur-
rent services, for the repeal of taxes, or
otherwise as parliament might direct. Ex-
pressing the same thing in other words, for
the sake of a brevity which is quite intelli-
gible, I might say that, during the first period,
the fund was to accumulate at compound in-
terest ; during the second, at simple interest.
" The application," as j^ou truly observe,

32

" of compound interest to the institution of
" a sinking fund, consists in adding to the
" income of the sinking fund the annuities
" which that fund successively redeems/' —
" A system of simple interest leaves them
" applicable to the repeal of taxation, or to
*' the exigency of any other service*.'*

All this, my lord, is as simple as it is just ;
neither Mr. Pitt, nor any other sensible man,
ever viewed the operation of compound in-
terest in any other light. I have no doubt,
but that much of the nonsense to which you
allude, as to the magic of compound interest,
has been talked in provincial towns ; but its
refutation really did not deserve a whole
section of your Essay !

But you object to the term " interest,'^ as
applied to the annuity saved to the state by
the purchase of its own debtf . Assuming
that it was desirable to secure the appropri-
ation, I cannot agree with your lordship in

* Essay, ]). 51. t P- ^^-

33

deeming this a perfectly useless fiction. As-
suredly, an account might have been kept of
the savings effected, and a direction might
have been given to add an equal amount to
the sum annually paid to the commissioners.
It was believed, that by making the issue of
these amounts quite a matter of course with
the ofiicers of the exchequer and the bank,
without any intervention of parliament, or
even of the treasury, the strict appropriation
would be more effectually secured. I am
satisfied that this effect was produced, or
materially aided by this cause. For more
than a quarter of a century the fund ope-
rated without encroachment. We are not
now considering the advantage derived from
the appropriation, but the efficacy of the
devices for securing it. I cannot but be-
lieve, that the alienation of the sinking fund,
and especially the appropriation of the an-
nual savings to any other purpose, was made
much more difficult to the minds of parlia-

34

ments and ministers, than it would have been
under another system. Indeed, much that is
said, as to the delusion practised under the
system of the sinking fund, furnishes proof
of this position. " The nation'' did not see
that it " was the true owner of these annu-
ities;" and, therefore, left them in the hands
of the commissioners. But I leave this,
which is, in truth, a merely formal part of
our inquiry. It may be possible to have, and
strictly to appropriate, a sinking fund, with-
out the machinery which has become so
offensive.

I have stated, that in former wars, inade-
quate provision had been made for the charge
occasioned by new loans. To ensure suffi-
ciency in future, was an important provision
of Mr. Pitt's system of finance. This it was
impossible to effect prospectively ; the pro-
vision must necessarily be made by the par-
liament of the time : it was only by requiring
full and distinct accounts,first of the revenues
applicable to the existing charge ; and, se-

condly, of the specific revenue raised for the
purpose of defraying each new charge as it
might be created, that he could in any de-
gree ensure the adequacy of the revenue, and
the reahty of the surplus. Any deficiency
would thus instantly become apparent, and
it was assuredly a part of the system that it
should be immediately supplied. It was also
Mr. Pitt's object, and his endeavour, to pro-
vide, if possible, by sums raised either within
the year, or within a period of a few years, for
extraordinary expenses, occasioned by arma-
ments or other political measures ; upon this
principle he acted for the few years which
intervened between the first establishment of
the sinking fund, and the measure of 1792,
to which I now request your lordship's atten-
tion.

This measure is founded upon the doctrine
which I have maintained, as to indefinite
mortgages of the resources of the state. It
fixes a limit, beyond which no mortgage is

I) 2

3a

to extend. It authorizes the creation of an
annuity for any period not exceeding forty-
five years, without any fund of redemption ;
but requires that provision shall be made,
for redeeming within that period, any an-
nuity for a longer term, or any perpetual an-
nuity, which may be created on account of
any new debt. If no provision for this pur-
pose be made by parliament, it directs the
appropriation of a sinking fund, of one per
cent., which is calculated to effect the re-
demption within the period limited. This
appropriated fund is part of the additional
charge attending a new loan, for which a se-
parate and sufficient revenue is, according to
Mr. Pitt's system, to be provided.

The period of forty -five years, was arbitra-
rily chosen ; probably because it was the esti-
mated period for the extinction of debt by
a sinking fund, equal to one hundredth part
of the capital. A longer or a shorter period
would have been equally reasonable; but

37

it was essential to the principle to fix some
limit, which should not be transgressed.

You will observe, that according to this
system, there would be no new financial
arrangement at the end of a war, unless the
peace establishment should go beyond its
antecedent rate: — taxes imposed for carry-
ing on the war, would cease ; taxes laid on
in consequence of the loans, would remain,
including within themselves the power of
extinction within a period of moderate
extent.

This then, my Lord, was the simple and
intelligible system of Mr. Pitt ; and I would
almost venture again to ask your Lordship,
whether if, instead of a sinking fund, a posi-
tive limitation could have been prescribed,
for the term of annuities charged upon the
revenues, the system would not have been,
even in your view, prudent, just, and prac-
ticable.

38

And I would also ask you whether it
would not have been, even with the sinking
fund, omitting, if you please, the machinery,
a system in all respects expedient in time of
peace.

I would ask you, still further, whether, even
if it were admitted, and known before-hand
that, in war, the plan of reduction must be
suspended, it would not be advisable to esta-
blish and maintain this whole system in
time of peace : the system being, as I
will again state it still more briefly, always
to maintain a revenue sufficient for all per-
manent charges and ordinary expenses, with
a moderate surplus applied to the payment
of old debts ; and not to anticipate future
revenue for more than forty-five years.

§6.
I NOW advert to the alleged " inefficacy of
" sinking funds operating in war." At the

39

first introduction of the plan of 1786, Mr.
Pitt had not perceived any anomaly in the
process of borrowing and paying debt at
the same time. Perhaps, indeed, he had not
contemplated the case. Mr. Fox saw the
difficulty, and Mr. Pitt readily adopted his
suggested remedy. This was the clause, so
often mentioned of late years, for enabling
the state, in time of war, to avail itself of the
amount of the sinking fund, without departing
from the plan. Mr. Fox's clause authorized
the commissioners to place themselves in the
situation of the loan contractors. Instead of
old stock in exchange for their money, they
were to receive a portion of the new stock,
created as the consideration for the loan.
Under this clause, as applied to the sinking
fund of 1786, the effect would have been
this ; the loan of the year, instead of the old
debt, would have been lessened by the
amount of the sinking fund in that year ; the
total debt at the end of the year, and the

40

income of the sinking fund, would have re-
mained on the same scale, as if the purchases
of the sinking fund had proceeded, and the
whole sum required had been raised by loan.
A simple suspension of the purchases of the
sinking fund, would have had the same effect
upon the debt ; but the annual income of the
fund would not then have been increased,
by a sum equal to the interest thereupon.
The clause, therefore, was simply a part
of the machinery, for securing to the fund
its growing income, without a special pro-
vision by parliament. In either case, there
would have been an increased debt, with a
permanent charge, without any provision for
the redemption of the excess.

But before a war occurred, so as to call
this clause into possible operation, the act
of 1792 had passed, establishing a new prin-
ciple, namely the limitation of forty-five
years. Under this act the sinking fund, when
applied upon the principle of Mr. Fox's clause

41

to the service of the year, receives not only
the interest of the stock newly created and
transferred to it, but a nevv^ annual payment
of one per cent, upon that stock, as well as
upon the stock really created and sold to the
contractors. The effect, therefore, is to leave
the debt at the same amount at which it
would have stood, if the whole loan had been
borrowed of the contractors ; that is, greater,
by the amount of that loan, than it was at
the commencement of the year ; but the por-
tion of this new debt nominally transferred
to the commissioners, is attended, like all
the other portions of it, with a sinking fund,
calculated for its redemption in forty-five
years.

If the sinking fund had been simply sus-
pended, it would have lost, as before, its
growing income ; and there would have been
an equal increase of debt, without any pro-
vision for redemption.

The sinking fund then, during war, is still,

42

whether Mr. Foxs clause be acted upon,
or the purchases proceed, and the loan is
increased by their amount, a mere piece of
machinery, for preserving the principle ; and
in the latter case it certainly may be termed,
without inaccuracy, a borrowed sinking fund.

But I beg your lordship to observe^ that
" the preservation of the principle," is not
simply the record of a dormant regulation,
not to be enforced until after the war. It is
an essential part of the system that the re-
venue shall be kept to the full amount of the
interest of the debt, whether in the hands of
the commissioners or of the stockholders ; and
that an additional revenue shall be created,
consisting of real surplus beyond ordinary
expenditure, sufficient for the redemption of
the increased debt, in whatever form the in-
crease occurs : so that the due proportion of
the burden of this debt shall be borne by
those who incur it.

Now, all this, I admit, might possibly be

4^

effected, without precisely those formalities
which the sinking fund requires ; whether it
would be done with more clearness and sim-
plicity in the public accounts, I have some
doubt ; but I am tenacious not of the form,
but of the principle. If I can be assured
" that forty-five years shall be the utmost
*' limit of time for which the revenues of the
" country shall be mortgaged, and that the
" provision made for preserving that limit
** shall not be set aside for any temporary
*' purpose *," I care not in what mode this
great principle is enforced.

But it is said that the machinery is expen-
sive. There is always, your lordship observes,
a profit to the contractor, and, consequently,
a loss to the state, when the government goes
into the market to purchase and to sell simi-
lar and equivalent securities. This observa-

* View of the State of the Nation, &c., by T. P. Courtenay,
Esq., 1811, p. 30.

44

tion, I presume, you apply only to the prac-
tice of the late war, when the purchases of
the commissioners went on, at the same time,
with the loans, and not to a period in which
Mr. Fox's clause is permitted to operate. A
refutation of your opinion is therefore super-
fluous, with a view to the defence of the sys-
tem of which that clause is a part. But it is
not certain that the double process has occa-
sioned a loss.

When Mr. Pitt, how much against his
wishes and expectations, no man knows better
than your lordship, was led into the war of
1793, and required to raise money by loan, it
was his intention, carried so far as to be an-
nounced in his budget speech *, to make use
of the sinking fund in virtue of the clause.
But he was persuaded, and he and all other
ministers acted upon the persuasion through-
out the war, that the cessation of the pur-

* Pari. Hist, xxx-, p. 562—3.

45

chases would lower the market price of the
stock which he offered for the loan, more than
the diminution of the amount of loan would
raise it ; and this was, up to a very late
period, the opinion of all the monied men
whom Mr. Vansittart consulted, with the sin-
gle, but certainly very important, exception
of Mr. Ricardo. The question is incapable
of demonstration. I am, myself, inclined, with
Mr. Grenfell, to the opinion of Ricardo ; but
the opposite opinion is by no means absurd.
There is nothing fanciful in the supposition,
that if a horse dealer, having been in the
habit of buying fifty horses annually, at a fair,
and paying a good price for them, were sud-
denly to discontinue the purchase, and to
bring one hundred horses to the same fair
for sale, his absence as a purchaser would
depreciate the price of horses generally at
that fair, more than a reduction of the
number, offered for sale, by one half, would

46

raise it. But I do not press this point, be-
cause, when arguing for the sinking fund pro-
spectively, I may presume that the sale and
purchase of stock by government w^ill not
again proceed simultaneously.

The discontinuance of the double process
does not necessarily imply the discontinu-
ance of the w^hole system ; not only the
diversion of all the revenues, composing the
sinking fund, to the current service, but also
the failure to make any provision for the
redemption of nev^ debt. By this failure,
those v^ho borrow and use the money, throw
off from themselves the whole weight of the
debt; instead of bearing, as under the plan
of the sinking fund, a proportion of it, deter-
mined by a previous and permanent rule ;
which rule requires us to bear, in the first
and every year of forty-five, one equal forty-
fifth part of the taxation occasioned by ex-
traordinary expenses.

47

Now, my Lord, the point upon which I am
most anxious to explain myself to your lord-
ship is, that this rule involves, not a mere
question of machinery, but a principle of
action ; I might almost say, a question, not
of finance, but of equity ! The rule, in its
detail, is arbitrary, and a matter of political
arrangement ; in its principle, it concerns the
fair dealing of man with man.

To conclude upon this part of the subject,
" the inefficacy of sinking funds operating in
" war:" — I am still inclined to think that the
sinking fund, with all its machinery, may
usefully be left to operate in time of war,
notwithstanding that new loans are raised ;
but I should deem myself quite successful in
my argument, if I could establish with your
lordship, and with those by whom the ques-
tion must be decided, this one great point: —
that when we supply the deficiency of our
own contributions by anticipations of future
revenue, we are to limit the duration of our

48

mortgage, and bear, during its continuance,
our equal share of the burden. This may be
done, notwithstanding that the machinery of
the sinking fund be entirely stopped.

§7.

In considering your first chapter, I have ne-
cessarily made many of the remarks which
occur on the second, wherein you treat of
" The operation and results of our present
" sinking fund." If, indeed, I have succeeded
in my bold attempt to impute to your lord-
ship a misapprehension of the character of
the fund, I have already shown the irrele-
vancy, to our present argument, of the four
propositions which you maintain in this part
of your Essay.

You state, as preliminaries, that " the two
" great objects of the fund are, the increase
" of the national wealth, and the reduction
«« of the national incumbrances* ; and that,

* Essay, p. 24.

49

*' vain and valueless is all which it has ever
" done, and all vvrhich it ever could do, for
" the advantage of the public * ;" — I answ^er
thus. An immediate reduction of incum-
brances, (w^ith which, as you elsewhere -f
justly say, an increase of wealth is synony-
mous) is not the object of the fund. But
notwithstanding several legislative deviations
from the original plan, and, perhaps, some
errors in practice, it has answered that which
was its object — lessening, by sacrifices made,
in other words, by taxes borne, at an ear-
lier period, the incumbrances sustained by the
country at a later time. This position re-
quires no detail of calculation, nor is it
affected by any of those which have been
made, (with how much accuracy matters not
here) to show that, in the whole course of its
existence, the fund has even occasioned a
financial loss. It is now enough to refer to
the material assistance derived by the public

* Essay, p. 20. t p. 31.

E

50

finances in 1813, and subsequent years, from
the fund, as modified by Mr. Vansittart.

Of this use of the sinking fund, you are
aware, for you affirm in your first proposi-
tion, that " all the direct benefit of which
" this establishment can, on the most favour-
*' able supposition, have been productive,
" consists in its having, from time to time,
" placed at the free disposal of the com-
" munity, certain portions of annual tax-
" ation previously appropriated to the inter-
" ests of our public debt*." But secondly,
" That all the means by which it has actually
" produced this effect have been supplied to
*^ it by surplus taxation, levied in excess of
" the current expenditure of the state, and
" therefore, imposed or continued solely for
" this especial purpose.''

In these two propositions I concur; they
are, in truth, the very ground-work of my
argument ; the object whereof has been to

* EsKjiy, p. 20.

51

demonstrate the propriety of leaving this
surplus taxation, for the purpose of setting
free those portions of taxation previously
appropriated. The difference between us
arises from your lordship's disregard of this
essential circumstance, that the operations
described in these two respective proposi-
tions, are necessarily separated in point of
time. Taxes, for instance, paid in 1800, set
free revenue in 1813.

I do not affirm that the burden and the
relief have been adjusted exactly according to
the principles which I have stated ; nor is that
a necessary subject of inquiry here. It is
enough that taxes imposed and paid at one
period have produced relief from taxation at
another.

§8.

I HAVE read more than once the latter part
of your observations in support of your first
position, without satisfying myself of the

E 2

52

object for which they are placed there. You
state very correctly, that " our public debt,''
that is, all that we can be required to pay,
" consists not in capital, but in annuities*;"
that what is called capital '* serves only to
*' express the price at which the state may,
" at its own convenience, redeem its engage-
" mentsf." The only deduction from these
acknowledged truths which I find in the
chapter is, that no "undue advantage has
" accrued to the public creditor, merely from
" the needless complication of the form
** which has been given to our loans J;"
namely, the form of stock, sometimes greatly
exceeding in nominal capital, the money lent.
I do not know what is meant by " undue
advantage." In a bargain fairly made no-
thing can be " undue ;" but if it is meant,
that the amount of this nominal capital is a
matter of indifference, either to the state or
to the loan contractor, I have again the mis-

* Essay, p. 29. t p. 31. . + p. 32.

53

fortune to dissent. It is either by the pur-
chase of this nominal capital, at the market
price, or by an offer to pay off at par, that
the state redeems a part of the annuities
which it owes. So much of nominal capital at
a lower rate of interest per cent, as will yield
a given annuity, has a higher marketable
value than a smaller capital, which, bearing
a higher rate of interest, will yield a similar
annuity. The former, therefore, is more
popular, so much sO;, that a loan can seldom
be procured in the latter, without a consider-
able sacrifice of interest. On the other hand,
the state is exposed to the probability of
having much more to pay for redeeming a
similar annuity when funded in stock of the
first mentioned description. The question in
these cases is, how much heavier a charge
for interest is it prudent to incur, for the sake
of obtaining money in return for the smaller
nominal capital ? The amount of the nominal
capital can only be a matter of indifference,

54

if the state never contemplates the reduction
of the annuities which it pays, either by pur-
chasing the capital, or reducing the interest.
There is assuredly a difficulty in bringing
into one account capital bearing different
rates of interest, nor can any such account
be framed for any useful purpose. But really
this discussion is out of place.

§9.

The observations whereby ybur second pro-
position is supported, are pervaded by the
misconception as to times and persons which
I have already explained. " For every por-
" tion of previously appropriated wealth
" which our sinking fund has placed at the
" disposal of the community, it has" not
" withdrawn from the same community a
*' corresponding portion of wealth previously
** free and unappropriated*/^ It withdrew
it from their predecessors. When you ask,

* Essay, p, 36,

55

" In what respect is it a more reasonable or
" more real operation to^ reduce taxation by
" taxing, than to pay debt by borrowing*?'*
the point of your epigram is at once blunted
by the observation, that the father, in the
case supposed, taxes himself now, in order
that the debt which he incurs, may not sub-
ject the son to accumulated taxation here-
after.

§ 10.

You carry with you the same misapprehen-
sion, through your third proposition ; " The
" reductions of debt thus effected are mere
" exchanges of equivalents f." And there are
in this section, striking instances of the im-
putation of weak and exaggerated represen-
tations, to the advocates of the system which
you condemn.

A purchase of stock in the market is, as-
suredly, as all fair purchases are, an exchange
of equivalents. In the case before us, the

* Essay, p. 37. t il>.

56

cost of the purchase is the result of " super-
" added taxation." Is this truth now known
for the first time? The only question is,
whether it be prudent, at a certain present
expense, or expense continued through a
certain period, to redeem an annuity charged
upon us and our heirs for ever. This ques-
tion was once resolved in the affirmative,
and the act followed the decision. Some
" millions" have been " removed from our
*' incumbrances/' To produce this effect,
corresponding incumbrances had been for-
merly sustained. All this I freely admit to
your lordship, if admission can be L;;pplied to
" an universal and obvious truism."

I also concur with your Lordship, in trying
these transactions, " by a reference to similar
" transactions in private life." The case is,
exactly that of a landed proprietor, who re-
deems a mortgage, for the sake of enlarging
the disposable income of his heir. He pays for
the annuity redeemed, its equivalent value in

57

ready money, and to make this money dispo-
sable, he has taxed himself, by the " wealth
" withdrawn from direct enjoyment.*" It is
possible, if his affection for his son, or a con-
sciousness of having incumbered the estate
a little too much through his own extrava-
gance, render him very highly desirous of
liberating the inheritance, that he may even
borrow the money, on a life annuity, or an '
insurance of his life. No doubt, if, instead
of redeeming the annuity, he had saved the
equivalent in a sum of money to be be-
queathed to his heir, the effect would be the
same. In neither case, is it pretended that
the " purchase is" to him, " a matter of
" gain." He suffers the privation ; his son
derives the equivalent benefit. Whether
England was in 1786, or at any other period,
or is now, under a like obligation with the
landed proprietor, is indifferent in reference
to the present object, which is simply to
illustrate the reasonableness of redeeming a

* Essay, p. 42.

58

perpetual charge, by an equivalent sacrifice,
even though the transaction produce no pro-
fit to the purchaser himself.

Your final remark, under this head, is
an objection to the systematic and " invio-
<« lable maintenance of a sinking fund, pre-
« scribed to itself by a nation, by law, for its
" own supposed advantage *."

I submit, that if the appropriation be
founded upon a principle, it ought to be sys-
tematic, and ought, therefore, to be subjected
to such sanctions, necessarily liable to be
superseded by a new law, as the legislature
can provide. Perhaps, if the advantage ex-
pected came only to those who from time
to time act upon the appropriation, legal
sanctions might be more burdensome than
useful : but I am certain that, in private life,
convenience and comfort are very much con-
sulted, by the systematic appropriation of a
particular fund or series of receipts, to any
distant object which, even without any posi-

* Essay, p. 47.

59

tive obligation, an individual is desirous to
attain. I do not find one observation, in your
section upon the operation of compound in-
terest*, which our previous discussion has
not anticipated. It certainly enunciates no
propositions which I desire to controvert. I
admit that Dr. Price was, if the terms be not
contradictoiy, an arithmetical enthusiast ;
and that compound interest " consists in add-
** ing to the income of the sinking fund, the
" annuities which that fund successively re-
" deems." It is in that character alone that
its application is suggested.

§ 11.

In your third chapterf , wherein you treat " of
** the attempted permanence and repeated
" interruption of the system," you state too
broadly the necessity of '* long and unvaried
" accumulation." Much benefit may arise
from a sinking fund, even though its authors

* Essay, p. 47. t p- -i^-

60

should be a little too sanguine, or too strict
in their anticipations of permanent and un-
qualified operation. I cannot admit that the
history of Mr. Pitt's sinking fund proves
either the inefficacy of his measure, or the
hopelessness of any attempt to re-invigorate
a sinking fund.

If, indeed, the attempt be " to provide for
" the true interests of posterity, much better
" than posterity itself*," it is likely enough
to be defeated; but, here again, I must re-
mind your Lordship that, in maintaining a
sinking fund, we do not simply recommend
to our successors a course of conduct bene-
ficial to them, or rather to their successors,
but we commence that course ourselves ;
and the benefit is felt, by those who come
after us, whether they follow in the same
track or not. If they are less provident, or
less just to their posterity, their disregard of
our example will cast no censure, or work
any justification, retrospectively, for us.

* Essay, p. 59.

61

But your Lordship knows that in using
the terms " we'^ and " posterity^' I can draw
no accurate line of distinction between the
two. The most lengthened operations of
our sinking fund, would not exceed the period
during which, not unfrequently, the same
man has a voice in parliament, and it may
have no inconsiderable operation within a
period much shorter ; so short, as to render
its maintenance a matter of consideration for
statesmen who look not beyond the events

in which they are themselves to share.

.1

§ 12.
I ADMIT, that *'the expected benefits of a sink-
" ing fund at compound interest depend," for
their permanence and extent, " on its unva-
" ried accumulation," but I deny that those
benefits are annihilated by the suspension of
that accumulation, or by its cessation before
the period originally planned. Let me apply
these remarks to your second and third posi-

62

tions on " the provisions adopted for giving
" permanence to the sinking fund of 1786*;'*
and " the actual failure of these endeavoursf."
I have nothing to object to your descrip-
tion of these provisions; I have already
sufficiently noticed your criticisms upon their
technicalities. Assuredly, these were adopted
by Mr. Pitt, " in the hope," in my opinion
not entirely "groundless," " of their contri-
" buting to give permanence to the systemj."
And it is somewhat remarkable that Mr. Fox,
who had not that taste for financial details
which belonged to the minister, appears fully
to have joined in this hope : the only amend-
ment which he proposed was, the introduc-
tion of a new fiction. When you describe it
as the aim of these fictions, *' to induce the
'* British parliament to act in after times,
" in opposition to its own deUberate judg-
" ment of what might best promote the public
" happiness," and aver that " if they failed of

* Essay, p. 60. t p. 65. I p. 62.

63

" this, they did nothing* :" you repeat your
error as to the relative bearings of the sink-
ing fund upon the present and the future ;
and you forget that the "pubHc happiness,"
as well as the convenience of the government,
must at any particular moment, almost neces-
sarily be promoted by the diversion of the
fund. Surely, knowing the temptation to be
strong to depart, for a temporary purpose,
from a system of permanent advantage, Mr.
Pitt did wisely in throwing the object of
temptation as much as possible into shade.
Whether similar devices would have the same
effect now, I have much doubt ; but I be-
lieve that they did tend greatly to the end
desired.

§ 13.

But truly, my Lord, there has not been the
complete failure which you imagine ; at least,
that failure is not demonstrated by the prc-

* Essay, p. 64-5.

64

sent circumstances of the sinking fund. I
wish, with your lordship, to dwell rather upon
principles than upon measures ; but I assure
your lordship that, without something more
particular than the brief history which you
give, we cannot illustrate the principle upon
which the question now at issue must be
decided. The question is, whether we shall
now, in time of peace, adopt any systematic
plan for reducing our national debt, or pre-
venting its future growth. There is not even,
necessarily, now a question, whether our plan
shall embrace any period of war which may
occur. It is surely not enough for the deci-
sion of this question to say that, in a similar
time of peace, more than forty years ago, a
like plan was adopted, of which, now, scarcely
a trace remains ; without adverting at least,
to this one little circumstance of detail, that
within seven years from the institution of the
fund, commenced a war of more than twenty
years' duration. Even according to your

65

lordship, if I correctly understand you, every
one of the "causes of this failure'' is to be
ascribed to *' that long and perilous contest."
How then do they demonstrate the impolicy
of the institution during peace ?

But your Essay does not trace, with exact-
ness, the operation of these causes ; in avoid-
ing details, it somewhat confounds occur-
rences. It is impossible to make good use
of the materials of our decision, without a
methodical arrangement of facts, as well as
of principles : I invite your lordship to accom-
pany me while I attempt this arrangement.

The sinking fund of 1786, operated with-
out disturbance, and without counteraction by
war, until the year 1793. In that interval,
political events had occasioned some extra-
ordinary expenses ; for these, provision was
made by the prudent minister of that day, by
occasional taxation *.

The productiveness of the revenue induced

* Rose's Examination, 1792, p. 43.

F

66

Mr. Pitt in 1792, when he instituted the new
sinking fund, appropriated to each future
loan, to make a special grant to the old fund,
of one year's clear surplus *. And the fu-
ture benefit of this surplus he proposed to
divide, giving one half to the fund, and, with
the other, repealing taxes. It is singular that
Mr. Fox f, the leader of an opposition, pos-
sessing great interest in the land, and pre-
tending to peculiar sympathy with the people,
reproached Mr. Pitt with an unworthy thirst
after popularity, because he did not give the
whole of the surplus to the fund ! In my
opinion, Mr. Pitt's was the wiser decision,
especially as the appropriation of one moiety
to the redemption of debt was not an absolute,
but an annual grant ; so that while, up to a
certain point, settled upon a fixed principle,
the income of the fund was inalienable ; be-
yond that point, it was available in the event

* £ 400,000. Pari. Hist, xxix., p. 824.
t Pasre 844.

67

of an accidental deficiency. In the instance
before us, the amount was small, and the war
soon destroyed the surplus ; but the proce-
dure is well worthy of imitation.

The amount of the sinking fund, at the
commencement of the war, was more than
one million, six hundred thousand pounds ;
consisting, in part, of the grant of parliament,
of the interest, in part, saved by the redemp-
tion of debt ; but composed, in all its parts,
of a real surplus of revenue ; about six hun-
dred thousand pounds of that surplus were
the result of the operation of the fund itself;
or, if you please, for it is in this place exactly
the same, of the nation's annual savings.

Here was an available sum, of capital, to
lessen the amount of the annual loan ; or, of
income, whereout the charge of a loan might
be provided. The amount was small, but
with reference either to the amount of the
■ debt, or to the scale of the expenditure, by
no means inconsiderable. As the period du-

F 2

68

ring which the taxes, composing this fund,
had been levied, was one of unusual prospe-
rity, there is no pretence for imputing to
them a severity of pressure. I confidently
submit that through this, the short, but only
period of continued peace, the sinking fund
had completely succeeded.

Nay, my Lord, I will even venture to ask
you, whether, if you could now go back to
1793, or rather to that period of 1792, up to
which you retained the hope of peace ; ima-
gining yourself and the nation to have been as
copiously watered as in these latter years,
" from the pure stream of science*," would
you stand up among your peers, the heredi-
tary possessors of lands and honours, and pro-
pose the abrogation of the sinking fund ?

Your first chapter would have given me the
hope of an affirmative answer; but in that now
before me, after enumerating the causes of
failure during war, not at this present moment

* Essay, p. 50.

69

a question between us, you have wrought
yourself (forgive the expression) into a train
of reasoning, not only against borrowed sink-
ing funds, and against all systematic plans
of redemption, even by a real surplus, but
almost against payment of debt in any mode
whatever.

Your arguments, if I see them clearly
through the metaphors which occasionally
dazzle me, appear to be these : — first, you
say that an accumulating fund exacts a pre-
sent sacrifice, not only of the taxes which
compose the fixed allowance, but of those
which defray the purchased, but still conti-
nued interests ; and that " for this great, im-
" mediate, and increasing evil," the only re-
turn offered is, " the hope of a speculative
" good, deferred to some indefinite but distant
** period ; and even in its ultimate effect, pro-
" ductive of a very questionable and equivo-
" cal advantage*." Your deduction is, that

* Essay, p. 70.

70

" the rulers of any community in the most
" prosperous condition of its finances, ought
" to apply themselves to the direct interests
" of those whose happiness is their primary
" and especial charge ;" in other words, re-
peal taxes to the utmost, without any regard
to the future.

I submit, that in these passages, there
are glaring errors, evincing an inaccurate
observation of the system which you con-
demn. How can it be said that the accu-
mulation of the sinking fund is an increasing
evil ? It is true that the amount of taxes,
applicable to the fund, and, therefore, dis-
posable, if the fund be abolished, increases in
every successive year ; but it is not true that
the amount of taxes of which the sinking fund
prevents the repeal, increases continually,
or increases at all. If the sinking fund of
1786 had never been created, taxes to the
amount of twelve hundred thousand pounds
annually might, at some time between 1786

71

and 1793, have been repealed. And if the
fund, having been formed, had been abo-
lished or suspended at any time within
the same period, there might have been re-
pealed such an additional amount as was
equal to the redeemed interest ; ultimately,
more than four hundred thousand pounds.
And this continually growing power of repeal-
ing taxes your lordship represents as the in-
creasing evil of the sinking fund, forgetting
that, without that fund, the whole of this
amount of four hundred thousand pounds of
taxes, must have been borne by the country
for all time to come ! An increasing power
of effecting a good, you style an increasing
evil, because it is not immediately enjoyed.

Again, the good, you say, is to be enjoyed
at some " indefinite, but distant period." The
period is not indefinite, and it is not neces-
sarily remote. I will not here re-argue the
propriety of assigning a limit to our debt.
I will only remind you that the definition of

72

the period, (subject only to variations of
price) is the very essence of the system ; and
that if at any time within that limit the state
is minded to anticipate the period, it may
secure a share of the advantage which was
ultimately to be enjoyed, proportioned to the
duration of its forbearance.

But you add that this contemplated advan-
tage, available, as you say, at a distant period,
available, as I say, at any period of the ope-
ration of a sinking fund, is, '^ as we have seen,
" very questionable and equivocal *."

My Lord, I have looked back, and I cannot
find the passage in which you treat the re-
peal of taxes, and of that advantage we now
speak, as other than a great and certain good ;
I look forward, and I come at once upon a
passage in which the repeal of taxes is stated
as so much the great and advantageous object,
that it ought not, on any consideration, not
even for the sake of extending its operation.

73

to be postponed by any state which has the
power of effecting it.

You will probably admit that you have
been led too far by the vehemence of argu-
ment, when you question even the eventual
advantage to flow from the sinking fund.
But, you say, in reference to benefits to be
realized hereafter, that " an earlier, although
" more gradual, repeal of taxes would spread
" its benefits in a thousand fertilising chan-
" nels, over the wide field of social industry ;
" and never could its absence be compen-
" sated by any forced direction given, after a
" dreary vacancy, to the produce of the same
" sources, pent up till it bursts these artificial
" barriers *."

I am not sure that I have caught the
meaning contained in this metaphorical pas-
sage. The question is, between repealing,
at once, an amount of taxes equal to an ex-
isting surplus of annual revenue, and letting

* Pase 71.

74

that surplus operate annually in the diminu-
tion of charge ; and then, at some future
period, whether previously fixed or not, is of
no importance here, repealing taxes equal to
the surplus and saving. The first alternative
w^hich your metaphor contemplates, is an
earlier, but it is not a gradual repeal. That
epithet is calculated to mislead us. Your
suggestion really is to disperse, at once,
among the community, the whole amount
which is not wanted at the exchequer; in
the hope, as I presume, that the increase of
wealth thus occasioned, will either augment,
at a future period, the produce of existing
taxes, or furnish resources for additional tax-
ation. It is only under this construction that
your reasoning can have any practical bear-
ing upon the question.

I am well aware of the distrust, with which
an argument in palliation of the effect of
taxes is received, especially when it proceeds
from an official man ; but I cannot do justice

• 75

to the question between us, without avowing
the opinion, that the effect of taxes, upon the
wealth of a nation, is usually much over-
rated. Taxation varies the distribution of
wealth ; it circulates it in different channels ;
but I know not the principle on which it is
maintained that, in the channels into which
it is thus circulated, it conduces less to the
general prosperity.

But whatever be the effect of taxes upon
the national wealth, they assuredly occasion
much individual discomfort, and almost every
man rejoices at their reduction. And upon
two points there is scarcely a difference of
opinion. First, that the effect of a repeal of
taxes, that is, of taxes upon consumption,
which comprise the greater part of English
revenue, is not always felt by the community
at large, in due proportion to the diminution
of public income. And this observation is
more strikingly just, when applied to the re-
duction only, not the abrogation of a parti-

76

cular tax. Secondly, the re-imposition of an
old, or the imposition of a new tax, is felt
much more severely, both by consumers and
traders, than the continuance of one which
exists.

It follows, that where there is any proba-
bility,— and when is there not? — that poli-
tical or financial occurrences will require, at
no very distant ^period, an augmentation of
revenue, a government which possesses a sur-
plus will consult the convenience and happi-
ness of its subjects most, by so disposing it
as to avert the probability of renewed taxa-
tion. I therefore confidently submit, that,
without any regard to the interests of the
next generation, still less of distant posterity,
there is wisdom, and kind consideration for
the people, in applying a surplus, or a part
of it, to a sinking fund. I say, or a part of
it, because it is no inconsiderable circum-
stance that, within a period of moderate
duration, a moiety applied to the sinking

77

fund will effect as much direct relief, as the
whole dispersed at once.

If then, my Lord, the expected effect of
your fertilising channels is, not the actual
augmentation of revenue, but the enlarge-
ment of resources to be drawn hereafter from
the people by fresh taxation, I am satisfied
that, even if your speculation be correct, you
estimate wrongly its operation upon the
public happiness.

I am well aware that the reduction of duty
often increases the consumption of the par-
ticular article relieved, and even of others ;
to the great increase of individual comfort,
and sometimes without loss of revenue ; this
truth ought always to be in the mind of a
minister of finance. If the diminution of
duty be compensated by the increased con-
sumption, it is a mere financial arrangement,
not a question of surplus. It may certainly
sometimes be prudent to postpone the appro-
priation of surplus, in order to give time for

78

the trial of the experiment, in any particular
direction. If you giveaway your actual sur-
plus, and your experiment then fails, you are
without resource, except in fresh taxation ; if
you apply it to a sinking fund, you have in
your hands the means of repairing the loss.
According to my principle, I should certainly
be unwilling to make this use of a sinking
fund, especially in time of peace ; it is pos-
sible to preserve at once the principle and
the immediate benefit ; but all that I would
now urge upon your Lordship is, that if
we look to the possibility of war occurring
in our own times, nay, if we look even be-
yond one single year, we shall disregard
your Lordship's counsel to cast away the
surplus which reviving prosperity may afford
to us.

To return now to the history of actual
occurrences ; I contend that Mr. Pitt's sink-
ing fund, so long as peace continued, pro-
duced an unequivocal and substantial good.

79

The extent of the advantage was limited, by
the return of war ; an event so completely
unexpected, that, in the very year preceding,
our military force had been reduced. De-
tailed figures are not necessary to show how
much the benefit would have been enlarged
if peace had continued ; I am satisfied that
if it had lasted only to the end of the cen-
tury, not a man in England would now doubt
of the wisdom of Mr. Pitt's system, or listen
to Lord Grenville's exhortation to renounce it.

§ 14.

But I now, at your Lordship's invitation,
consider the actual operation of the system
during the far different circumstances pro-
duced by war. Under these, you say, " it
" compelled us to heap loans upon loans, and
" taxes upon taxes, in a series of unlimited
" accumulation ;" — " it increased the defi-
" ciency of the revenue, by the full amount
" to which its operations were carried." —

80

'* Its whole amount, all its fixed allowances,
*' all the redeemed annuities, and all the
" pretended accumulations of interest by
" which they are increased, served only to
" swell the long schedule of taxation." — " In
" addition to the war loans, we had sinking
" fund loans, rapidly increasing, and ulti-
" mately of very large amount." — " To the
" new charge of interest created by the for-
" mer, a further and similar charge was
" superadded by the latter." — " To neither
" of these new services were the annuities to
<* be redeemed by this increasing fund at all
" available ; both were to be met always by
" fresh taxes *."

No wonder indeed, if the ills of which you
give this long catalogue, convinced parlia-
ment that the system had failed, and led to
its ultimate suspension !

But your representation of facts, my lord,
I am compelled to observe, is, in some parts,

♦ Essay, pp. 72, 3, 4.

81

greatly exaggerated, in others, wholly in-
correct.

In order to estimate the effect of the sink-
4 ing fund, we must consider what would have
been the operations of finance if your lord-
ship had, in 1786, outrun the wisdom of your
contemporaries, over-ruled the prejudices of
Mr. Pitt, and persuaded him to follow the
advice which you now give. Let us see,
what would have been the variations from
the actual state of the national account on
one side and the other. I will go no further
at present than the year 1802, because in
that year the first war terminated, and the
first alteration was made in Mr. Pitt's sink-
ing fund ; and in the course of the subse-
quent war, the fund underwent a second, and
still more material alteration.

If, then, there had been no sinking fund,
the surplus of twelve hundred thousand
pounds would have been dispersed, by the
repeal of taxes ; by that amount the revenue

82

applicable to the permanent charges of the
state, in technical language, the income of
the consolidated fund*, would have been di-
minished;— on the other hand, the charge
upon that fund would have been diminished
by the amount of the fixed allowance to the
sinking fund of 1786 ; so far, then, the ac-
count is not affected by the system of 1786 ;
— the deficiency was not increased, nor any
necessity created for an additional loan:
taxes certainly were continued; no fresh
taxes imposed.

But under the act of 1792, a fixed allow-
ance of one per cent, upon the capital of
every new loan was added to the sinking-
fund, whereby the charge upon the consoli-
dated fund was annually increased ; to defray
this charge, which progressively increased
from about sixty thousand pounds to two
millions and a half annually, new and sufR-

* To be strictly accurate, I must observe that ,£200,000 of
this fixed allowance formed a part of the annual supply ; but as
it was invariably voted, the distinction is merely technical.

83

cient taxes were imposed. The deficiency,
and the amount of the loans, were not directly
affected by this part of the operation, any
more than by the former.

In addition to these fixed allowances, the
sinking fund received the several amounts
of the annuity redeemed ; that is, of interest
upon the stock purchased by the sinking
fund. For these amounts no new charge
was laid upon the consolidated fund; they
were the result of the operations of the
sinking fund itself, but for that institution,
they would have remained the property of
individuals. Through this part, therefore, of
the operation again, the national account
was not affected ; the deficiency was not aug-
mented, no additional loan was required, nor
was any tax either imposed or continued-

The result of the whole is, that if we had
had no sinking fund in the war of 1793, we
should have had at our disposal, the surplus
of twelve hundred thousand pounds, provided

G 2

84

that we chose to revive, and again impose, the
repealed taxes, to that amount; and, suppos-
ing also that w^e had determined to impose in
every year taxes to the amount of the one
per cent., we should have had those several
amounts disposable, either to defray the
charge of loans, or for current services. If
they had been applied to current ser-
vices, the loan of each year might have
been diminished; that of 1793, by sixty
thousand pounds ; that of 1801, by two mil-
lions and a half ; those of the other years by
various intermediate sums.

To this extent you are correct, in ascrib-
ing to the sinking fund the origination of
loans ; it did not divert or appropriate to
itself a single amount of capital raised by
loan, or of income raised by previous tax-
ation ; but it did occasion the maintenance,
and the creation, of revenues, which might
have been revived, or created, with a view
of diminishing the loans. You forget,

85

that for every addition thus occasioned to
the loans, a former amount of debt was re-
deemed, so that although the sum annually
borrowed was increased, no addition was
made to the debt.

I know, my Lord, how widely this state-
ment differs from some which have been
over and over again made in parliament, and
supported by a formidable array of figures ;
as well as from your lordship's more pointed
and forcible statement. It is, however, ex-
actly conformably in substance, though it
differs in expression, with that of Dr. Hamil-
ton, whom your lordship, like some others,
mistakingly supposes to have placed in a
new light, the operation of the sinking fund.

Again then, my Lord, I take my stand with
Mr. Pitt, and I confidently submit that he
had a right, in 1802, to look back with pride
at the working of his system.

He had adhered to it in all its parts.

He had maintained at more than its origi-

86

nal amount, the revenue which existed before
the war ; he had made an adequate provi-
sion for all the new charges which the war
had occasioned. He had made provision for
the redemption within the limited period of
forty-five years from the origin of each loan,
of the whole debt which he had created ; he
had borne the share in this redemption which
that limitation prescribed; and he had les-
sened by the millions, which his sinking-
fund had purchased before the war, as well
as by war taxes, unknown to his immediate
predecessors, the amount to which the debt
would otherwise have increased.

Had peace been then maintained, upon the
scale of expense of the former peace, inde-
pendently of any permanent charge arising
out of the war, there would have been a clear
surplus of revenue, over and above the sink-
ing fund. That fund amounted to five millions
eight hundred thousand pounds. If it had
been deemed advisable, at that moment, to

8T

put an end to the fund, in order that that large
annual revenue might be disposable, that
very measure would have been a proof, not
of the failure but of the beneficial operation
of the plan. This considerable income was,
no doubt, the result of taxation, and taxation
might, by other modes of proceeding, have
raised a similar revenue ; but by none, I will
venture to say, of such easy and inoffensive
operation upon the people. Indeed, the
hitherto easy pressure of the system was
pretty clearly demonstrated, by the imposi-
tion of extensive and productive taxes in the
succeeding years.

I must here observe, that it is possible that
an additional revenue might have been neces-
sary, even though the war had not been re-
newed ; this necessity is rfeferrible to a cir-
cumstance, for which Mr. Pitt's system had
not, and could not have, specially provided ;
the tendency of the ordinary expenditure,
during a war, to exceed that which preceded

88

the war. It cannot now be ascertained whe-
ther the increased revenue would have met
this new charge ; according to the estimates
of the period, it would have been more than
adequate. It is obvious that a sinking fund,
or any system which requires the imposition
of taxes during war, beyond the amount re-
quired as interest on the loans, affords a ready
method of meeting this increased expendi-
ture; if, contrary to the fact of 1802, other
means are wanting.

But I will again pause to ask your lord-
ship, whether, if you could now go back to
the peace of Amiens, either with or without
a more favourable opinion of its duration
than that which you entertained, and which
the event justified, you would, on reviewing
its operation both in peace and in war,
counsel, at that period of peace, the abro-
gation of the sinking fund, or its diversion
from the object of its institution?

89

§ 15.

I MUST now call your attention to a modi-
fication, which the sinking fund did undergo
in 1802, which has occasioned much of the
prevalent misconception of its nature.

We have already seen that Mr. Pitt's
sinking fund of 1786 was to operate, for
one period at compound interest, afterwards
at simple interest, until the whole of the old
debt should be redeemed. The several
smaller sinking funds created under the act of
1792, were to operate at compound interest,
each by itself, until its particular loan should
be discharged.

In 1802, the old sinking fund had ap-
proached, within six or seven years, the
period at which it would operate at simple
interest ; from that time the finances would
have derived an annual progressive relief of
about two hundred thousand pounds, for
about thirty years. The relief occasioned
by the separate sinking funds was computed

90

to commence in about twenty years ; from
which period it would operate very irregu-
larly, but very extensively, through a period
of rather more than thirty years.

These calculations are subject to much
variation ; but the truth is, that a mistake of
even ten years or more, is of no importance.
That which I wish to impress upon your
lordship is, how much you are mistaken in
speaking of Mr. Pitt's fund as " never to be
" made available to any present uses of the
" state, — no, not in its utmost necessities,
" but continually to be augmented for the
" benefit of some remote posterity*."

Mr. Addington, in 1802, certainly with the
full concurrence of Mr. Pitt, repealed all the
provisions whereby any relief was to be de-
rived from any part of the sinking fund, until
the whole existing debt should be discharged,
a transaction estimated to be completed in
about forty-three years. By thus appro-
priating to the fund prospectively, large

* Essay, p. 75.

91

amounts of revenue which would otherwise
have been available to the state, he accele-
rated the period in which the total debt
would be extinguished, and assuredly did
not infringe the principle of the sinking fund,
in reference to the limitation of the national
mortgage ; but, by greatly deferring the
period at which the fund would begin to
operate, visibly and intelligibly, to the relief
of the people, so as to authorise the repeal
of taxes during peace, or the abstinence from
fresh taxation, if it should occur during war,
he did as much, practically, to bring the sys-
tem into discredit, as if he had invaded or
diverted it. May I be permitted to add, that
I held and expressed this opinion at the
time * ? I never formed one which experience
more amply justified.

* " Observations on the Present State of the Finances, 1803."
I take this opportunity of mentioning, in reference to this and other
parts of my letter, that I have purposely omitted several details,
which would be necessary to a complete history of finance, but
have no important bearing upon the present question.

92

§ 16.

The war recommenced in 1803 ; the old
sinking fund proceeded, and as the act of
1802, had not affected future loans, new sink-
ing funds of one per cent, were created.
The amount of the loans, however, was much
diminished by the very judicious and ener-
getic resolution of Mr. Addington, (acting, I
believe I may say, under the advice, and
certainly with the assistance, of Mr. Vansit-
tart*,) a resolution adopted and extended by
Mr. Pitt, and by your Lordship, to raise a
large proportion of the supplies within each
year. This system proceeded without mo-

* I perform a very agreeable duty, in bearing testimony to
the judgment and vigour of the measures whereby Mr. Vansit-
tart, now Lord Bexley, augmented, on this, and on other occa-
sions, the revenue of the state ; and I am more particularly
desirous of adverting to the present measure of raising a large
sum within the year by war taxes, because I did express an ap-
prehension, that he proceeded too far. I am now satisfied that,
although (as usually happens) the revenue was not at once aug-
mented to the extent of the increased taxation, the measure of
1803 was judicious and successful.

93

dification for the first four years of the war.
I shall not dwell upon the proceedmgs of
1807, because I am determined to avoid per-
sonal argument ; it is enough to say that, in
that year, a portion of the war taxes was mort-
gaged for about fourteen years, a measure
strictly within the principle of 1792 ; and
that in the following years, other portions
were made permanent by Mr. Perceval, and
charged with the interest, and corresponding
sinking fund, of new loans. It is quite unfair,
in my opinion, to object to these measures,
as encroachments on the sinking fund*, or
departures from its system. They were, in
fact, modifications, occasioned by the in-
creasing pressure of the war, of measures
which were an improvement upon that
system.

§ 17.

But in 1813, a second alteration was made in

* See Mr, Ricardo's article in the Encyclopedia Britannica,
cited in the Essay, p. 66.

94

the sinking fund, which, though very intelU-
gible in its first principle, being very full of
details, has tended, if I may so express my-
self, greatly to mystify the subject; and I
am satisfied that your lordship has not care-
fully considered it.

Its avowed and leading object was to cor-
rect the error of 1802, by restoring to the
sinking fund, its principle of gradual relief.
There were, in my opinion, several objec-
tionable points in the mode in which this
object was effected: two I will particularly
mention. First, the remedy was applied
to a part which was not affected by the dis-
ease ; in my opinion, if the correction had
been applied only to the sinking fund of
1802, the measure would have strengthened
instead of impairing, as I am convinced it
has, the principle of the sinking fund. Se-
condly, the principle of self-operation was
destroyed, by leaving parliament to fix,
from time to time, the amount of the

95

relief which (always under the limitation
which the new, or revived, principle esta-
blished) the country should derive from the
fund. According to the old principle, the
revenue set free should no longer have been
issued by the commissioners, and would have
occasioned an immediate diminution of charge
upon the consolidated fund, and consequent
increase of the surplus.

The necessity of the interference of par-
liament in every instance, gave to each the
character of an encroachment upon the sink-
ing fund, which has led others as well as your
Lordship, into error. Disapproving for these
and other reasons, of the measure of 1813,
I cannot think you justified in deeming it a
violent breach of the barriers * of the institu-
tion, and an evidence of the failure of the
whole plan. Your remark that " too much
was attempted -f ," is just when applied to the
measure of 1802 ; but it is not just as to the

* Essay, p. 6-1 . t P- 74.

96

original system ; which the plan of 1813 pro-
fessed to revive, by restoring to the establish-
ment that which, though certainly overlooked
by your lordship, was truly, " of its very
" essence," a principle of gradual relief.

Now, my Lord, I must again invite you to
look back, and review the operation of the
sinking fund, up to the period which we are
now considering, the first at which it was so
relaxed, as to afford present relief.

The sinking fund now amounted to thirteen
millions ; of which rather more than six mil-
lions and a half consisted of fixed allowances ;
the remainder of the redeemed interest. Cer-
tainly, although the sinking fund had never
existed, an amount of taxes gradually rising
from twelve hundred thousand pounds, to
thirteen millions, might have been applied to
the current service. And if those sums had
been raised in war taxes, they would have
constituted a fund, whereon the interest of
loans might have been charged, just as they

97

were charged after the year 1813 upon the
sinking fund. The great benefit which the
parliament and people of 1813 derived from
the sinking fund, consisted in the obligation
which its existence had imposed upon pre-
ceding parliaments to create the surplus re-
venue, instead of borrowing the amount upon
a perpetuity*. Actual, arithmetical gain,
there was assuredly none ; financial and poli-
tical convenience, in my opinion, much.

I cannot allow that, in 1813, the institu-
tion could be justly styled inefficient ; or one
which had consulted only the interests of re-
mote posterity.

Between 1813 and 1822, Mr. Vansittart's
measure placed at the disposal of parliament,
an annual income of nearly ten millions -f .

* " The sinking: fund has had a real effect in calHnj? forth ex-
" ertions which, although they might have been made as well
" and as effectually, would not have been made, unless to follow
" out the line which that system required."— " If the sinking
•• fund had not been in view, it is likely that taxes would have
" been imposed for the interest only." — Hamilton, p. 153.

t Commons' Journals, LXXVII. 792.

98

During the latter years of the war, when the
great and successful efforts were made for
accomplishing that for which the country had
fought so long and so bravely, there were
raised upon this annual fund, the greater por-
tion of the immense sums, which those efforts
required. For the present purpose, it is no
matter whether this was effected by a restora-
tion, or by a subversion, of Mr. Pitt's principle.

Further loans were raised in the same way,
during the following years of peace ; and
thus the income of the sinking fund, within
nine years, stood in the place of ten millions
of new taxes.

If, then, the sinking fund be considered as
having expired under Mr. Vansittart's opera-
tions, it will be allowed to have made one of
those vigorous efforts, which sometimes im-
mediately precede death. For a testimony
of its living merits, let me refer you to one who
witnessed, with no ordinary powers of obser-
vation, its existence and its decease. " An
" efficient sinking fund, in the opinion of

99

" many gentlemen who sat near him, could
" not exist at the same period that we were
" increasing our debt. In that position he
" did not coincide. He thought, for instance,
" that when Mr. Pitt first established a sink-
" ing fund, and although, during a consider-
" able portion of his subsequent life, the
" country was engaged in foreign wars, by
" the enormous expense of which the debt
" was increased in a far greater propor-
" tion than the sinking fund paid it off; yet
" that, in effect, we then always had a sink-
" ing fund. Of every loan that was borrowed
" to meet those vast expenses, Mr. Pitt pro-
" vided for the interest, and reserved a fund
" of one per cent, for the extinction. Un-
*' doubtedly, an incredible weight was added
*' to the debt by the protracted war that en-
" sued ; but what would have been the situa-
" tion of the country, had she sooner eflfected
*' a peace ? All those loans which had been
** borrowed in war time, would have been

H 2

100

" provided for, and there would have been
" left an efficient sinking fund. Had this
** system been adhered to during the whole
" progress of the war, he would have been
" the last man to raise his voice against the
** sinking fund *." These are the words of
Ricardo ; and I might rest upon them alone
an argument for restoring the sinking fund.

§ 18.

After war had been terminated, and its ex-
penses defrayed, it certainly did behove par-
liament to replace the finances upon the safe
and plain ground on which the war had found
them ; and I admit that this process might
have been sooner and more judiciously con-
ducted. Of the steps taken towards this con-
clusion a slight sketch is sufficient.

Nothing permanent was attempted, until
the year 1819. The object was, after fully
discharging all expenses of the war, and re-

* Pari. Deb., New Series, VIII. 316.

101

ducing the floating debt to a convenient size,
to secure a revenue sufficient, according to
its average produce, to cover all permanent
and ordinary expenses, including a provision
for the redemption of the funded debt. A
strict adherence to the law of the sinking
fund, even as it was modified and relaxed in
1813, would have required a great temporary-
increase of taxes ; great, because the nominal
amount of the sinking fund was even then
fifteen millions and a half, and the estimated
surplus of revenue not more than two ; tem-
porary, because the operation of the law of
1813, would have afforded considerable and
periodical relief. This taxation would not
have been required, if the taxes which ex-
isted at the end of the war, had been con-
tinued ; for there had already been a repeal
of taxes to the amount of nearly nineteen
millions* ; composed, no doubt, principally
of taxes specially destined for the war ex-
penditure.

* Mr. Robinson's Budj^et speech, 18-26, Appendix IV.

102

It was determined to have a real surplus
of five millions *, v\^ith vi^hich view three mil-
lions of new taxes were imposed. No altera-
tion was made in the law of the sinking fund ;
its nominal amount continued far to exceed
the balance of free revenue, and there was
now, as I conceive, a manifest departure from
the principles of Mr. Pitt, and from those
which I have humbly submitted as essential
to a sinking fund in time of peace ; from this
period, and until the year 1823, the operose
transactions of the sinking fund were justly
exposed to criticism and ridicule. The ma-
chinery was now inefficient, even for se-
curing an appropriation, or preserving a prin-

* " Resolved, That to provide for the exigencies of the
" public service, to make such progressive reduction of the Na-
" tional Debt as may adequately support public credit, and to
" afford to the country a prospect of future relief from a part of
" its present burdens, it is absolutely necessary that there should
" be a clear surplus of the income of the country, beyond the
" expenditure, of not less than five millions ; and that with a
" view to the attainment of this important object, it is expedient
" now to increase the income of the country, by the imposition
" of taxes, to the amount of three millions per annum." — Com-
mom'' Journah. LXXIV. 509.

103

ciple. Nevertheless it was not until the year
1823*, that parliament reduced the nominal
sinking fund, to the level of the actual or in-
tended surplus. In the interval, Mr. Fox's
clause v^as brought into operation, so that

* *' Your committee cannot quit this part of the subject re-
" ferred to them, without calUng the attention of the House to
" the advantages which would be derived, not only in respect of
" a simphfication of accounts, but also in respect to considera-
" tions of still more importance, from a review of the present
"■ system upon which the application of the sinking fiind is con-
" ducted.

" It might not be expedient, during the continuance of the
" war, and until the experience of several years of peace had
" placed the revenue and expenditure of the country, upon a
" footing not likely materially to be varied, to attempt a revisal
" of the administration of the system, adopted for the reduction
" of the National Debt ; but it seems now advisable, that the sum
" appropriated for that purpose, should be limited to the amount
" really intended to be applied to the discharge of debt, and
" which can be afforded from an actual excess of revenue above
" the expenditure of the country.

" The opinion of the House upon this subject may be con-
" sidered as expressed in their resolution of the 8th June, 1819;
" and your committee submit, that, at an early period in the en-
" suing session, measures should be proposed for reducing the
" amount of the nominal sinking fund, upon the principles of the
" said resolution, and for discontinuing the practice of applying
" any part of it to the public service, in the form now become
" customary, of an annual loan." — Report from the Hdvct Coin-
millec on Public Accounts, July 31, 1822, p, 10.

104

the more considerable portion of the fund
was lent to the public for current expenses :
the greater part of the interest and sinking
fund being charged upon the fund itself,
under the act of 1813,

But even the surplus of five millions has
not been constantly realized, since the deter-
mination of 1819. This deficiency is ov^^ing
to the great reduction of taxes ; amounting,
nearly, to eleven millions and a half, while
the decrease of charge by the reduction of
the interest on the five and four per cent,
stocks, is under two millions. Although,
therefore, the five millions have been regu-
larly paid to the commissioners, they have
not been the result of a permanent surplus,
but have been obtained, in part, through
casual receipts ; and, since 1823, by what is
whimsically called " the deadweight arrange-
ment," to which, as being intimately con-
nected with the principle of the sinking
fund, and being very little understood, I must
request your Lordship's attention.

105

If the sinking fund had continued on its
original plan, or on the plan of 1813, the
arrangement would, in my opinion, have been
both justifiable and expedient. We all ad-
mit that, for the extraordinary expenses of a
war, we may reasonably borrow ; your lord-
ship says, on a perpetuity, Mr. Pitt said, on
an annuity of forty-five years. Now, the
charges which are the object of this arrange-
ment, arise strictly and truly out of the war,
although, from their nature, being pensions
arid allowances enduring for the lives of indi-
viduals, they are not paid at once, but con-
stitute, so long as they endure, an annual
charge (or dead weight) quite unconnected
with the current expenses of the state. If
they could have been discharged at once, in
single payments, which might, perhaps, have
amounted to twenty or thirty millions, I ap-
prehend that there would not have been
in practice, and certainly not in principle,
any objection to raising that sum by loan

106

charged upon the permanent revenue, with
the required sinking fund, for discharging it
in forty-five years.

As this could not easily be done, the
revenues of forty-five coming years are
charged v^^ith such an annuity, as will spread
equally over that whole period, the autho-
rised limit of a national mortgage, the whole
expense of these war payments ; which
would otherwise press very unequally and
severely on the earlier years. By the sale of
that annuity, those unequal annual sums are
to be raised, while the pressure upon the
public is equal in every year.

This equalization is not less reasonable in
itself, than it is consistent with the principle
for which I have humbly contended ; but it
is quite inconsistent with the resolution of
1819, discarding, or at least suspending, the
principle of forty-five years, and affirming
the necessity of " a clear surplus of the
" income of the country beyond the ex-

107

" penditure, of not less than five mil-
lions*."

If our sinking fund now stood upon a prin-
cijple, we might justify the " dead weight ;"
but while it rests upon a specific surplus^ it
becomes delusive, to the extent in which it
consists of any thing but surplus.

Moreover, in our haste to repeal taxes, we
have adopted two principles, both, as I sub-
mit, erroneous. We have included in the
account of income and expenditure whereon
our balance is struck, every sort of receipt
and disbursement, however uncertain or occa-
sional ; and we have considered as permanent
surplus, which we might freely give away
by reducing the taxes, every actual or ex-
pected exceeding of revenue, without making
any allowance for erroneous estimates, or for
fluctuations of produce.

I am far from disputing, indeed I have
elsewhere maintained, the propriety of re-

* Resolutions of the House of Commons, of 8tli June, 1819.

108

ducing taxes, as an experiment of the effect
of reduction upon the produce of the re-
mainder ; but as we are now upon the causes
of the failure of the sinking fund, I cannot
omit these, to which the present defalcation
is correctly to be traced.

§ 19.

I HAVE submitted to your Lordship this
history of the sinking fund, in the hope of
convincing you that you have misconceived
both the degree and the causes of the im-
puted failure, and that you draw an unau-
thorised conclusion from the failure which is
admitted.

The institution was formed, forty-two
years ago. This period consisted, of six
years of peace ; twenty-four years of war ;
then twelve years of peace. Its operation
in the first period was necessarily upon a
small scale ; but not even your lordship will
impute to it a failure.

109

The question now being, whether to re-
establish the institution during peace, I might
fairly disregard, in the determination of that
question, the whole following period of war ;
but I have endeavoured to show that its ope-
ration, even during the war, was not without
advantage ; and that the objection to it is ap-
plicable, only, to a mistaken choice between
two modes of using it, equally parts of the
system. This mistake, if it be one, might be
avoided by a recourse to Mr. Fox's clause.

Your charge of failure, upon the present
period of peace, it is impossible to repel :
but it is a failure occasioned by external
violence, not inherent disease.

The violent measures were, the systematic
reduction of the fund to five millions ; and,
the destruction of the surplus, whereout that
provision was to come.

The first of these, may or may not have
been judicious. It is not altogether impro-
bable, that if the gradual operation of the

110

plan of 1813, in affording relief, had been
sufficiently understood, and impressed upon
parliament, it might have been found expe-
dient, at the expense of a continued pressure,
to persevere in it; borrowing money for
every expense in any degree connected with
the war ; and maintaining our taxation, until
released by the operation of the sinking fund,
at the scale of the ordinary peace expendi-
ture, enlarged as it has been by the events
of passed years.

But surely, my Lord, it is not just to im-
pute failure to the sinking fund, because,
after a war of unexampled effort and profu-
sion, succeeding a very short period of peace,
it was not found possible to adhere strictly
to a system planned in contemplation of an
alternation of peace and war more conform-
able to experience. The sinking fund of 1819,
it is admitted, was not calculated to redeem
the debt in forty -five years from that period ;
still less from the respective periods of its

HI

origin. But the amount bore to the existing
debt, a greater proportion than did the sink-
ing fund of 1786; and it was to accumulate
without check, until it should reach the point
from which the redemption within the pre-
scribed period would be effected.

With all my partiality for the sinking fund,
I cannot regard a relaxation in this degree,
whether it were one produced by necessity,
or by a view of expediency, not quite enough
regardful of the future, as a decisive indica-
tion of weakness or impracticability in the
system. When you consider that it was
accompanied by the imposition of three mil-
lions of taxes, it ought rather to be regarded
as a proof of the determination of parliament,
at that recent period, to persevere in the
system of Mr. Pitt.

There has, then, been no complete failure,
until now, when, through the too liberal re-
peal of taxes, the surplus has disappeared.
It may be true that the diminution of the

112

fund has been the consequence of attempting
too much, more indeed than Mr. Pitt con-
templated. The " ultimate suspension," as
you style the present state of the fund, is the
consequence of over-sanguine anticipations of
financial prosperity. Nor can these results
be deemed a " decisive experiment" which
ought to " lead to the total abandonment of
" the system."

One word more, before I quit this long
section of the Essay. I believe that I have
already disposed of all the passages, wherein
you allude to " increasing loans," and
" extraordinary taxation ;" except one re-
markable passage with which you conclude,
by lamenting that means had not been found
for carrying on the war with more vigour
and effect, by sparing to us those additional
loans, or additional taxes, by an earlier dis-
continuance of the system. Your lordship
herein correctly ascribes to the system its
power of giving, at any moment, such

113

effectual support as, I have shown, the late
fund did afford us, in a period of the greatest
exertion. Let it even be granted that the
aid will be most efficacious, if sought at the
first moment of war, why do you counsel
us against collecting, in time of peace, mate-
rials so important to the vigorous prosecution
of the contest.

§20.

In your *' conclusion," you dispose of four
various heads of advantage, as those which
are ascribed to a sinking fund by its different
upholders.

1. Some, you say, recommend the system
as " a resource in unforeseen emergencies.'*
On this you originally observed, that " a
" disposable surplus has its own advantages
'* and disadvantages *, but, in both, it essen-
*' tially differs from a sinking fund. The one

* The passage is altered in the second edition, and the di.sad-
vantaj^e is explained. It consists in the surplus, "beginning- iu
" needless taxation, and, probably, leading to needless cxpendi-
" lure." Page 80.

114

" is appropriated, the other free." The one,
therefore, you infer, cannot answer the pur-
pose of the other.

In my view, the advantage here ascribed
to the sinking fund is incidental only ; it
certainly was not, and, upon my principle, it
ought not to be, an original object of the in-
stitution ; yet it furnishes of itself a sufficient
reason for maintaining it in peace. The
" appropriation " of a fund having this origin,
would be " the unforeseen emergency ;"
but a sinking fund, the most strictly appro-
priated to redemption of debt, in any other
form than a specific pledge to the stock-
holder, is always within the power of parlia-
ment ; and its liability to be used on an
emergency, may fairly be claimed as one of
its recommendations.

2. To raise and uphold the price of stocks,
may have been an advantage ascribed to the
institution by a fundholder. To a statesman
it is none, except under any particular cir-

115

cumstances, in which a high price of the
funds assists a financial operation ; this may
be, (for we will put loans out of the question)
a reduction of the interest of the debt. The
effect is not desired, for the benefit of any
one set of proprietors, (which would be highly
unjust) but for the benefit of all who pay
taxes. Considering this as a merely inciden-
tal and occasional advantage of a sinking fund,
I shall not argue against your opinion of its
inefficacy. I beUeve that the purchases of
the commissioners have a great efiect upon
the price, which is not materially counter-
acted by any consequent diversion of capital
to other investment.

3. Your third supposed advantage is thus
described — "The compulsory accumulation
" of national wealth and its diversion from
" unprofitable expenditure into productive
" capital." As stated by Ricardo, from whom
you cite it, this beneficial effect resolves
itself into relief from taxation. Through the

I 2

116

sinking fund, he says*, we repeal taxes;
taxes are generally paid out of revenue,
which would otherwise be expended, and
which thus come to be employed in increasing
the annual produce of our land and labour.

This is not my view of the effect of the
repeal of taxes. I subscribe to your Lord-
ship's doctrine, that our object is " not the
" multiplication of wealth, but the multipli-
*' cation of that social happiness which is
" derived from wealth, and which consists
" essentially in its use." Most assuredly ;
and there is an addition to the happiness and
comfort of every man who finds that he has
the "free use" of a part of his income
hitherto due to the government, or that, with
the same income, he may enlarge his con-
sumption, hitherto straitened by what was,
in effect, a sumptuary law. In relief from
direct or indirect taxation, he experiences
one or other of these substantial benefits ; for

* Supplement to the Encyclopedia Britannica. " Funding
System.'' Pac^e 421.

117

the effect which this plan for enlarging, not
" narrowing his enjoyments," produces upon
the national wealth, he cares nothing.

I, too, my Lord, in arguing for a sinking
fund, disclaim all speculative and circuitous
advantages ; I discard all notions of " forced
"accumulation and compulsory saving*;" nor,
indeed, is any thing like them to be found in
the authority which you quote. I concur in
your view of " the proper aim of legislation ;"
but I would not that the parliament of the day
should diminish, by burdensome anticipa-
tions, the power of all future legislatures to
pursue the course which you recommend.

4. I do not perceive the absurdity which
your Lordship imputes to are commendation
of the sinking fund, as giving confidence at
home and abroad. I know not how accu-
rately an enemy will estimate our power,
when there is a question of war between us ;
but it is obvious that we assert our rights
with more confidence, when we know that

* Essay, p. 82.

118

we possess, not " unreal " wealth, but the
facility of maintaining, without additional
taxes, fifty thousand additional soldiers, or
of realising many millions of money. Un-
doubtedly, this is the effect, not of a sinking
fund peculiarly, but of a surplus revenue ; I
submit that experience limited, but decisive,
has taught us that a sinking fund is the easiest
and surest mode of preserving this surplus,
and, in that sense, it gives us confidence in
our foreign and domestic policy.

§ 21.

I HAVE examined, with a boldness for which
I again apologise sincerely, the reasonings
whereupon you counsel the abandonment of
the sinking fund. I have now to solicit your
attention to the details of the advice of an
opposite tendency, which, upon the grounds
which I have stated, I would humbly offer to
the country.

Those grounds are, first, the injustice and

119

improvidence of an indefinite charge upon
the revenues ; and, secondly, the expediency
of husbanding our resources, for a time of
war*.

Your Lordship will observe, that neither of
these reasons leads, of necessity, to the esta-
blishment of a sinking fund, to operate during
war. The latter almost necessarily excludes
such operation; the former is quite con-
sistent with a determination to pursue, so
long as we have peace, the system, then to
be suspended.

My advice is, that we revive the sinking
fund, consisting of clear yearly surplus ; that
we retain, even if we cannot at once strictly
act upon it, the limitation of forty- five years;
and that that limitation should be maintained
in war as well as in peace.

* Dr. Hamilton's third gjeneral principle is this: — "The
" amount of the revenue, raised in time of peace, ought to be
" greater than the expense of a peace establishment, and the
'* overplus applied to the discharge of debts contracted in former
" wars, or reserved as a resource for the expenses of future
" wars." Page 7.

120

A clear yearly surplus is the balance of
the average produce of the revenue, over and
above the average of the ordinary expendi-
ture. Our permanent income ought to be
estimated, upon an average, comprising years
of various production ; and our estimate of
expenditure ought to allow for contingencies.
In some years, there will be a balance of in-
come, in others, a slight deficiency ; but, if
we intend to have a real fund of redemption,
we must provide a surplus beyond the ave-
rage balance of income and expenditure.

However desirable it may be to restore the
limitation of forty-five years, I do not think
that parliament can prudently, or consistently
with recent proceedings, call upon the people
for a larger surplus than that which was deli-
berately fixed by the House of Commons in
1819 ; and which is now, by law, the amount
of the sinking fund. I know not to what ex-
tent any expected reductions of expenditure
will assist in effecting this surplus ; still less

121

can I estimate the improvement, of which
there are visible symptoms, in the existing
revenue. I fear that neitlier of these causes
will afford the surplus, without a restoration
of a small portion of the thirty millions of
taxes, which have been repealed in the pre-
sent period of peace ; and I am aware that
taxes may possibly be required to the extent
of the whole five millions *.

For reasons already given, I here presume
that no further portion of the dead weight
annuity is sold ; indeed, as we do not at this
moment act upon the principle, by which
alone that arrangement is justified, it would
be better to reduce our actual sinking fund,
than to supply it by means of the annuity.

I do not insist upon the immediate impo-
sition of five millions of taxes ; we may fairly
take two years in the operation, during which
we may watch the progress of the revenue,

* In the )ear 1827, there was no real surphis ; the deficiency,
which J estimate at about nine luindred ihoiisand ])ouiuIs, we
may fairly expect to supply by improved revenue.

122

and ascertain the amount required, and the
readiest sources for supplying it. That there
will be any difficulty in obtaining the sur-
plus, experience forbids me to doubt; it
might be procured by addition to the present
taxes upon consumption and expenditure, or
by the levy of an income tax, to the amount
of double the sum required, accompanying a
great reduction of those taxes upon consump-
tion and expenditure which are much less
conformable to the true principles of taxation,
and interfere much more with production and
the employment of labour.

The next question regards the limitation
under which this sinking fund is to be applied.

By the act of 1823 *, it is to accumulate
at compound interest, until it shall amount to
one hundredth part of the debt -f ; that is,

* 4 Geo. IV. c. 19.

t The funded debt, and the unfunded, if unprovided for. I
think that no part of the unfunded debt, which, though not spe-
cifically provided for, is a charge upon the revenues of the next,
or soon following years, ought to be included among the objects
of the sinking fund.

123

until it shall constitute a fund, capable of re-
deeming the debt within forty-five years from
that time, it would appear, the fixed allow-
ance of five millions will continue strictly
appropriated ; but the redeemed interest may
be applied, in the spirit of the act of 1813, " as
" parliament may from time to time direct."

This enactment appears to recognise the
limitation of forty-five years, but with an
important variation from the original prin-
ciple ; it should seem that the period might
be continually renewed, and the principle
satisfied, if there exist, from time to time, a
fund suflUcient for the redemption of the debt
within forty-five years, if applied at com-
pound interest throughout the period. Now
I do not say that this is altogether contrary
to the principle of 1792 ; and it certainly is
not contrary to the practice of individuals,
which I have invoked in support of that prin-
ciple.

If we were always at peace, and were con-

124

tinually to renew our incumbrance at the
same amount as that which would be re-
deemed, this mode of applying the principle
would keep down the debt, at its existing
amount ; but it would be a most improvi-
dent scheme for us, who are always liable to
war ; and would be quite inconsistent with
Mr. Pitt's system, which requires the equali-
zation of the permanent income, with the
ordinary expenditure, and the maintenance of
a clear surplus for redeeming debt.

To your Lordship, however, this supposed
system of loans in peace ought to be accept-
able ; for the arguments founded on the ab-
surdity of our concern for the interests of
posterity, would clearly justify us in borrow-
ing, at all times, as much money as we can
possibly raise, for any purpose whatever,
upon perpetual, still more certainly upon
terminable, annuities.

We ought, as I suggest, so to manage our
one per cent sinking fund, as lo place our-

125

selves, as nearly as possible, in the situation
of having borrowed, in war, upon annuities
of forty-five years ; and of not borrowing at
all in time of peace.

On these grounds, as well as because I ob-
ject to the parliamentary discretion borrowed
from the act of 1813, I disapprove of the
provisions of the existing sinking fund act ;
and conceive that if the proportion of one in
the hundred be preserved, it ought to be used
for its original purposeof redeeming, in forty-
five years, the debt to which each fund is
appropriated; this can only be effected by
an unchecked operation at compound in-
terest.

Do I then propose that our sinking fund
of five millions should so accumulate? I
answer no. And my reason is this ; we are
now, perhaps, in respect of the existing debt,
in the situation in which Mr. Pitt stood in
1786; and in creating, or restoring, a fund of
redemption, we may fairly fix a period at
which it shall begin to work actual relief

126

from taxation. The unchecked accumulation
of the fund, would postpone this relief sixty
or seventy years, and then effect it to an
amount much too large for one operation.

These several considerations induce me to
wish that the fund had been made to operate
at compound interest, till it should arrive at
eight, or I should prefer, ten millions, and
then to operate, as was intended of Mr. Pitt's
four millions, at simple interest ; effecting in
every year, subsequent to the attainment of
that point, an additional relief from taxes.

Yet as the amount to which the present
law requires the accumulation will probably
be upwards of seven millions, it may be as
well to leave the law as it stands ; hoping
that the future parliament, which shall be
called upon to act upon the discretion vested
in it, or perhaps a little sooner, will, of itself,
adopt a definite rule of relief. If I were to
suggest a rule, I think that it would be this ;
— that from that period, one half of the sum
-r-nnqllv savcd by the operation of th^ ^^^^^

127

should, as now, be again carried to the fund,
and the other half set free.

The present law makes no new or special
provision for war. Mr. Fox's clause remains
in force, and the rule of 1813, which requires
in some cases, a sinking fund, greater than
one per cent.* on new loans is retained.

Though I do not see the necessity of this
larger fund I am decidedly of opinion that,
here again, it is advisable to leave the act as
it stands. It will probably be revised at the
commencement of a new war; I will only
express my hope, that if, as is extremely pro-
bable, the operation of the fund should be
altogether suspended in time of war, we shall
still not depart from the rule which requires
the imposition of taxes to the amount of one
hundredth part of every new loan. This rule
may be obeyed, and the principle of 1792
substantially maintained, without any double
process, or any of the machinery of the sink-

* 53 Geo. III. c. 35, s. 5.

128

ing fund. I hope and trust that we shall
never conduct another war without raising a
large portion of the supplies within the year.
A part of the additional taxes levied for this
purpose should be added to the permanent
revenue, the surplus of which is, in the ordi-
nary course, applied to current services.
The produce would, during war, reduce the
amount of the annual loans, and thus operate
upon the amount of the debt in the same
proportion as if it were carried to a sinking
fund*. In peace it would be applied to the
sinking fund.

I have said that the one per cent sinking
funds, being a substitute for terminable an-
nuities, ought as much as possible to be
assimilated to them. A very ingenious but
eccentric connexion of your lordship's, the
late Lord Stanhope, made a suggestion in
1786f , for securing the unvaried appropri-

* See a similar sug-^estion in Dr Hamilton's book, p, 154.
t Pari. Hist. xxvi. 17.

129

ation of the fund, which would have effectu-
ally answered this purpose, and may be
adopted with much advantage now. He pro-
posed to make the sinking fund a part of the
engagement with the stockholder, from
which there could be no departure without
a breach of faith. By this he intended, not
only to secure the inalienability of the
fund, but to purchase the stockholder's*
consent to easier terms of redemption.
There are two modes in which a variation of
this suggestion might be applied, during the
present period; we might purchase by the
application of a part of the fund, the consent
of the three per cent, stockholders to the
conversion of their stock into a smaller capi-
tal at a higher rate of interest ; or we might

* As this is the first time of mentioning the stockholder, I
take the opportunity of expressing my satisfaction at your lord-
ship's concurrence (evident from your omission of the topic) in
the rejection of all claim on the part of the stockholder to any
sinking fund, except in the one case of the 3^ per cents., in
which there is a specific legal pledge. The general pledge is
rather to the land.

130

facilitate that which is the most desirable
of all the results, the conversion of the per-
manent, into terminable annuities, the differ-
ence being paid out of the sinking fund. I
will not now pursue this topic into all the
varieties of which it admits, although it is
intimately connected with the present dis-
cussion, inasmuch as it refers to an effectual
mode of " giving permanence to the sinking
" fund."

It must be admitted that this mode of
appropriating a sinking fund, excludes the
possibility of making any other use of it, and
is, therefore, inconsistent with the second
object of the institution, the collection of the
means of carrying on future wars ; those at
least which may occur, as wars almost cer-
tainly will, within our period of limitation.
Indirectly, however, our efforts in war would
be greatly assisted by the provident and
effectual reduction of our permanent debt;
and, although, if we have a fund at our dis-

131

posal, it may be wise to use it in war, I am
satisfied that we ought not to be deterred,
by the hope of accumulating that fund, from
taking the most effectual measures for reliev-
ing the country from the perpetual charge,
which we ourselves and our predecessors have
imposed upon it.

I have only one word more as to the ma-
nagement of our finances. If we make effec-
tual provision for our expenses, the revenue
will still fluctuate ; there may be occasional
deficiencies, occasional surplusses : the former
would cause a temporary augmentation, the
latter a diminution of the floating debt ; and
I hope that it will not be until a surplus has
endured for at least three years, that we
shall again disperse resources which it is
difficult and painful to recal. If there should
be any doubt of the permanence of the sur-
plus, and the reduction of the floating debt
should be thought unadvisable, Mr. Pitt's
practice in 1792 should be followed ; a part,

k ■>

132

at least, of the occasional surplus should be
granted for that time, not specially appropri-
ated, to the sinking fund ; this would be no
grant to " remote posterity," as by accelerat-
ing the attainment of the maximum, we should
bring nearer to us the period, not very distant
now, according to my suggestion, of direct
and copious relief.

My Lord, I have now completed my en-
deavour to lay before the public the facts and
principles upon which they are to decide the
great question at issue.

I deceive myself if I have not urged rea-
sons, of no inconsiderable weight, in favour
of the principle of limiting our charge upon
posterity ; and I am still more confident that
I have shown good grounds for rejecting your
Lordship's counsel, which would lead us alto-
gether to disregard our debts, and not even,
in this time of peace, to think of reducing
them ; for this advice, I submit, you cannot
cite the opinion of statesman, philosopher, or

133

economist, or the example of any sober man.
Foreign countries will fail you ; Russia and
France have sinking funds ; and the wary
and provident government of the North Ame-
rican States, have recently* re-inforced their
sinking fund, to operate unchecked during
peace, but to be disposable by congress dur-
ing war.

Your advice my Lord, forgive me for saying
it, is really one of those excesses into which
orators are sometimes misled by the intoxi-
cation of argument ; and it is well worthy to
be classed with those boasts of heaven-born
genius, and magical power, which you impute
to us, the advocates of the policy which you
reject.

Our error you ascribe to " the love of sys-
tem.'' My Lord, although I utterly discard
all arguments (if arguments they can be),
founded upon a change of your lordship's

* See in Cohen's Compendium of Finance, p. 177, an abstraq
of the American Act of 1817.

134

opinion upon the application of a principle ;
I own that I see with unmeasured surprise.
Lord Grenville the contemner of a systematic
policy. I have always been taught to expect
from you, indeed I have heard, if I remember
well, not unfrequently from your lips, an in-
dignant and contemptuous reprobation of
occasional devices for carrying on the public
affairs : those who were the more peculiar
admirers of your Lordship, would boast of
your superiority in this respect to your friend
and fellow-counsellor ; and would sometimes
reproach him with too ready a submission to
political circumstances, while your Lordship
assumed and pursued a statesman-like and
undeviating rule of action.

I never could accede to the imputation
upon Mr. Pitt, who, according to my humble
observation, combined with more of judicious
discrimination than any statesman of the time,
an adherence to right and chosen principles,
with a prompt estimate of passing occur-

135

Fences ; and never, in the moment of the obe-
dience to occasional considerations, which
his eventful times required, lost sight of
his more approved policy.

Yet, in your Lordship, there always ap-
peared a still more tenacious and formal ad-
herence to system, and a reference, in all your
opinions, (how impressively enforced upon
your auditors, my youthful recollections well
attest,) to the permanent welfare of your
country. No man could trace a more an-
cient interest in the soil of England; no
man's counsels carried that interest further
into the time to come.

And, now, it is by Lord Grenville that we
are taught to ridicule systems, and to disre-
gard future generations ; to satisfy our own
wants from year to year as we can, leaving
to annual consideration the settlement of our
most important concerns, and not caring how
we may affect or embarrass our posterity.
I earnestly hope, that the Lords and Com-

136

mons of this day will deem otherwise of their
duties as statesmen ; and that if the still re-
maining consequences of the late struggle,
have left us too weak to sustain the vi-
gorous counsels of Pitt, we may still adhere
to the resolution suggested by the practical
wisdom of Castlereagh, and enforced by the
eloquence of Canning.

I have the honour to be, with great respect,
My Lord,

Your Lordship's
Most obedient and humble servant,
Thomas Peregrine Courtenay.

London, April SOth, 1828.

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